Inherited money and property prices

The UK’s property market is being increasingly shaped by inherited property wealth. According to a new report by cross-party think tank Demos, we are entering a "new age of inheritance," with inter-generational gifts totalling more than £100 billion per year. It is, though, a trend that has been building for some time. Since 1979, inheritances have been roughly doubling every 20 years and they are expected to double again in the next 20.

A large proportion of those intergenerational gifts are the result of inheritances from property. Approximately 10% of homes sold are from probate, i.e. from the estate of someone who died. In 2022, total house sales were £295.7bn. Probate properties would have accounted for around £29.57bn of that. Another significant chunk comes from the much-publicised “Bank of Mum and Dad’ who often generate the cash by releasing equity in their homes - an approach that enables their offspring to get their hands on their inheritances early. The Equity Release Council reported that lending in the sector reached as high as £6.2 billion in 2022.

To give you an idea of how that works on an individual level, Demos found that households headed by people born in the 80s expect to inherit an average of almost £250,000 during the course of their lives. That’s the equivalent of eight years income at the average salary.

A significant proportion of that inherited money will be spent on property and that additional spending power drives up prices, which, in turn, increases inheritances. For those families with property, it is a virtuous circle, but has the opposite effect for those who don’t. What we inherit, however, varies widely from the average, depending on where our parents live and what they earn. The offspring of the wealthiest families are likely to receive a 29% boost to their lifetime income via inheritances, whereas the least wealthy will get just a 5% boost, and those in the South of England tend to inherit around three-and-a-half times as much as those in the North East.

Inherited money has a particularly profound impact on first-time buyers. Rising property prices mean getting onto the housing ladder is becoming increasingly difficult. House prices are now nine times the average income; however, as renting is more expensive than buying, the biggest obstacle is saving for the deposit rather than the monthly payments. To get the best mortgage rates, a typical first-time buyer needs a deposit of 25%, or £63,500, which takes around 11 years to accumulate.

It is why inherited/intergenerational gifts can make such a big difference. Around 63% of first-time buyers get help in that way, but those 37% that don’t are likely to remain stuck in the rental sector, however hard they strive to get out of it. It is a scenario that is resulting in some worrying inequalities between the younger generations. It has implications for businesses, too, making it far harder for them to recruit staff for lower-paid jobs, with many potential workers forced to move away from the major cities in their search for affordable homes.

The lack of access to family money is now one of the key drivers of falling home ownership in the UK, why the average age of the first-time buyer is now 34 years old and 4.9 million people are still living with their parents. The Conservatives have constantly tinkered around the edges of the problem by variously reducing Stamp Duty for first-time buyers, introducing Help to Buy schemes and underwriting 95% mortgages. The only real solution though, and that includes almost all the housing industry’s problems, is to build more homes. The stumbling block has been the Conservatives’ fear of upsetting their core voters with a rash of new developments. Labour, on the other hand, have already said that they will ignore the NIMBYists and get building, even on some parts of the green belt.

We’ll see how that all pans out after the election.

If you are looking to invest in the property market, why not take a look at some of the fabulous properties we have coming up in our next auction at Phillip Arnold Auctions.

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