How Millennials are reshaping the prime property market

03 Jul 2019

The investment profile of younger HNWIs is not what we’ve come to expect of Gen X or the Baby Boomers. These 18- to 34-year-olds are entrepreneurial and share an aptitude for risk. And as they enter their peak earning years and grow their net worth, their significant buying power has the potential to reshape the prime property market.

Despite headlines about rising prices and low supply deterring young homeowners, research by mortgage broker Commercial Trust found that the 20-29 and 30-39 age groups posted year-on-year increases in buy-to-let mortgage applications between 2015 and 2018.
 
Allison Thompson, managing director at property specialist Leaders, says: “Some people may think buying to let is exclusive to older, wealthier people, but the figures show people of any age can get a foot on the ladder and enjoy the perks of being a landlord for years to come.”
 
It’s not just investment in buy to let that separates millennials from their forbears. Dig a little deeper, and their preferences for both the location and nature of the real estate they’re snapping up offer clues as to where money might be headed.
 

Putting a premium on London

 
Our prime property hotspots research found that young people (those aged between 18 and 34) perhaps unsurprisingly attach a higher premium to property close to the capital. Prime real estate, they say, is for the most part located in major cities – London being the first choice, and Manchester and Birmingham the regional stars.
 
In London, they view Kensington & Chelsea as a current hotspot, followed by Barking & Dagenham, Barnet, Westminster and Bexley. The older cohorts similarly cite Kensington & Chelsea and Westminster, while also showing a preference for Richmond upon Thames and Kingston upon Thames.
 
It’s not just geography that separates the young from the old, but the assumptions underpinning their investment decisions.
Outside the capital, all age groups view Bath, Cambridge and Oxford as property hotspots, and prime new-build opportunities in these cities remain highly sought after. That said, over-55s tend to gravitate towards more rural areas like Sussex, the West Country and Hertfordshire, and are generally more interested in buying internationally.

 

What do buyers want?

 
It’s not just geography that separates the young from the old, but the assumptions underpinning their investment decisions. And as more millennials enter the market, they’re remoulding the very definition of what we think of as prime real estate.
 
Nearly 20% of millennials believe a property valued at £1.5m or above qualifies it as ‘prime property’, whereas only 8% of 35- to 54-year-olds agree on this criteria, and 2% of the 55-plus crowd. The older cohorts are more likely to consider £500,000 the ‘prime’ benchmark.
 
Over-55s are also more likely to see prime property as an investment for themselves, whereas the younger generations tend to be looking for buy-to-let and buy-to-sell opportunities, or for a second home.
 
And what does each value most in a prime property? The 18 to 34 age group is looking for good transport links and the overall health of the market – in other words, demand for housing and a possible pool of renters. In contrast, Gen X-ers and Baby Boomers view square footage as the most important factor, with the former also citing outside space and the latter unique features.
 
In what may come as a surprise, millennials seem to place less value on the ‘cool factor’: only 64% say that a trendy location is more important for prime status than it was 10 years ago. It’s Gen X that places the most value on a location’s trendiness, with 71% of respondents aged between 35 and 54 saying that buying in a trendy, up-and-coming area has become more important to them in the past 10 years, compared with 67% of Baby Boomers.
 

And where are they thinking of buying?

 
When we asked respondents to look 10 years ahead to identify areas that will outperform in terms of appreciation, transaction volumes, rental yield and rental price growth, there were significant shifts compared with their current preferences.
 
In London, the younger cohort are watching Harrow, Bromley and Hillingdon. Wedged between Wembley and Slough, the latter gets the vote of 11% of millennials and 8% of Gen X – and zero Baby Boomers. In contrast, Gen X and Baby Boomers (and millennials to a lesser extent) expect Kensington & Chelsea to remain a hotspot.
 
Looking to future hotspots outside London, millennials valued northern powerhouses Liverpool, Manchester and Leeds ahead of old favourites Bath, Cambridge and Oxford.
 
Will millennials ultimately buy in the areas they identify as future hotspots? If they do, it’s sure to shift the centre of gravity within London, and outside it.