Analyst highlights the current market situation impacting borrowers
The latest report by Hamptons has revealed that Millennials, as they reach the midpoint of their mortgage term, will become the first generation to see mortgage repayments increase during the second half of their loan, breaking a pattern experienced by previous generations.
According to the Hamptons Generational Affordability Index, Millennials have paid similar amounts in mortgage repayments to Baby Boomers and Generation X over the first half of their mortgage terms. For instance, in 2024 prices, the average Millennial paid £863 per month during the first five years of their mortgage, compared to £923 for Generation X and £775 for Baby Boomers. Despite this early alignment, Millennials will face starkly different conditions moving forward.
Millennials’ misfortune is primarily due to higher interest rates, which have risen significantly since they first entered the housing market, according to the report. Unlike previous generations who benefited from declining interest rates as they paid off their mortgages, Millennials are facing the prospect of paying more as rates climb.
Projections suggest that Millennials still have 61% of their mortgage repayments to make, while Baby Boomers and Generation X had only 41% and 40%, respectively, left to pay at the same point in their loans.
Aneisha Beveridge, head of research at Hamptons, explained the shift: “Millennials started buying their first homes in the shadow of the 2007 crash, back when house prices were on their way up and mortgage rates on their way down. However, the shift towards higher mortgage rates in recent years has changed everything. Unlike previous generations who generally benefitted from interest rates drifting down, making repayments more affordable, Millennials have been uniquely squeezed.”
Impact of rising interest rates
Millennials’ situation contrasts sharply with that of Baby Boomers and Generation X, whose mortgage payments fell in the latter half of their loan terms as inflation and interest rates dropped. Beveridge noted that while lenders’ stress testing ensures most borrowers can manage these higher rates, it will still exert financial pressure on Millennials at a crucial stage of life when they are likely balancing family responsibilities and career progression.
The report also highlighted the challenges facing the next generation of homebuyers. Generation Z, who are beginning to purchase homes, will encounter mortgage repayments that are nearly double those paid by Millennials when they first bought homes.
The report has estimated that the average Generation Z homebuyer will pay £1,739 per month, compared to the £863 Millennials paid in their first five years. This gap has indicated soaring house prices and sustained high interest rates, noted the report.
The Hamptons Generational Affordability Index adjusted historic mortgage payments to 2024 prices, enabling comparisons between generations’ housing costs based on a 10% deposit. Millennial repayments for the second half of their mortgage term reflect future interest rate projections, while Generation Z’s repayments are based on current house prices and rate forecasts. The analysis utilised data from the ONS House Price Index and Bank of England mortgage rates.
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