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Posted on 10th May 2018

Would £10,000 help millennials get on the property ladder?

This week (9 May), a new study has recommended that people from the age of 25 in Britain be given a £10,000 Citizen’s Inheritance to ease inter-generational financial unfairness.

The study, titled A New Generational Contract, is the result of a two-year analysis of the experiences and prospects of multiple British generations. It’s the only verified study that has explored inequality between the young (typically millennials born between 1981 and 1996) and the old (typically baby boomers born between 1946 and 1965. As well as the proposed Citizen’s Inheritance of £10,000, the report recommends policies like an NHS levy, as well as wider changes to the tax and pension systems.

According to the study, the funding for such a payout could be raised through an overhaul of the inheritance tax system, by replacing it with a ‘lifetime receipts tax’ that would be set at 20% tax on all gifts or inheritances in a lifetime up to £500,000, and then at 30% above that. The intention of this policy is to redistribute wealth to young people to help them in a more challenging financial climate, and to ease the discord between older and younger generations.

The recommendation of the study is a radical one, but would it actually help to ease any of the financial challenges facing the younger generation, particularly in the housing market?

One of the first criticisms that could be levelled against the idea is the worry that the £10,000 might be wasted by some; however, the report stipulated that it would be a restricted payment that could only be used on a worthy cause, such as securing a property, furthering education, or starting a business venture. The intention is that the Citizen’s Inheritance wouldn’t simply be free cash, but an investment the younger generation could make in their future.

On the property front, the report found that millennials were only half as likely to own their own home by the age of 30 as a baby boomer was at the same age. The report highlighted getting more young people on the housing ladder as one of the main benefits of the Inheritance.

However, while the figure of £10,000 would certainly help to build a deposit for a cheaper home outside of a city, many people may find that it barely dents their fund for a city home, especially in the South. For instance, the typical 20% deposit for a home in London stands at over £80,000 (Nationwide), so an injection of £10,000 won’t make a huge impression.

Some people have already labelled the idea of a Citizen’s Inheritance a gimmick (Guardian), and they might be right when it comes to the issue of helping millennials with housing. It’s easy to see the idea as papering over the cracks of bigger housing issues right now in the UK. With the demand for property so high, surely increasing the supply of affordable homes will do much more to get young people on the property ladder than a one-off £10,000?

And, we haven’t even discussed the conflict that a £10,000 payout could potentially cause.

Matt Stevens, Director here at The Mortgage Genie, said: “Without a doubt the findings are going to cause a divide. A catch-all solution like this could also end up creating even more disparity than before. For instance, a middle-aged baby-boomer who earns a lower wage may have some of their salary taxed and redistributed to a successful millennial earning more than them, which is hardly fair.

“Plus, with a £3,000 gift allowance each year under current rules, quite a lot of parents and other family members have already been able to help their children and younger family members save for a deposit without having to pay Inheritance Tax. Under the proposed changes, the same people who have already contributed to the younger generation would get stung again by the shake-up of the system and the introduction of a lifetime receipts tax. We should concentrate more on solving the problems at their source, rather than planning age-based payoffs in the short term.”

It remains to be seen whether these proposals will be picked up by the government. However, one of the positives to come out of the findings is that it has sparked conversation about the harsh realities for first-time buyers saving for a deposit. Hopefully, this leads to change for the better.

If you are looking to get yourself onto the property ladder but need some advice, our guide to saving for a house deposit is well worth a read. We also provide mortgage advice for first-time buyers, as well as the Help to Buy scheme, so be sure to get in touch.

 

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