"Unlike previous generations who generally benefitted from interest rates drifting down, making repayments more affordable, Millennials have been uniquely squeezed"
- Aneisha Beveridge - Hamptons
Hamptons' new Generational Affordability Index reveals how mortgage repayments have changed over time for homeowners of all ages. In their analysis, Hamptons have inflation-adjusted older mortgage repayments to reflect 2024 prices, enabling a more accurate comparison of housing costs across different generations.
The first five years
In 2024 prices, the average Millennial (born 1981-1995) paid £863 per month during the first five years of their mortgage loan. This compares to Generation X (1966-1980) who back in the mid 90’s, paid the equivalent of £923 a month, and Baby Boomers (1946-1965) who paid an average of £775 a month on their new mortgage.
Millennials paid an average of £246,000 for their home when they began buying in 2011, significantly more than the £149,000 paid by Generation X and £74,000 paid by Baby Boomers (all in 2024 prices). However, whilst Millennials initially faced mortgage rates of around 1.5%, Generation X were paying 6.7% and Baby Boomers 13.5%. This meant that mortgage repayments were initially fairly similar across all three generations.
However, with rates now set to stay higher for longer, Millennials’ repayments will rise during the second half of their mortgage. Higher payments will start from the first time they remortgage since late 2022. This means Millennials are set to be the first generation of homeowners to see their mortgage repayments increase during the second half of their 25-year mortgage term.
Meanwhile, both Baby Boomers and Gen X saw their mortgage repayments fall sharply during the second half of their mortgage term as inflation and then interest rates dropped.
Halfway home?
Millennials are nearing the halfway point of their 25-year mortgage. Our analysis reveals that, when adjusted to reflect 2024 prices, Millennials have paid a similar amount on their mortgage to what both Generation X and Baby Boomers paid at the same stage of their mortgage term.
During the first half of a typical Millennial’s mortgage, the rate has averaged just 1.5%. However, based on current market expectations, this rate is projected to climb to an average of 4.3% during the second half. Consequently, our analysis shows that during the first 12.5 years of their mortgage term, Millennials have only made around 39% of the mortgage repayments they are likely to pay.
This means Millennials are likely to be the first generation of homeowners to pay off a higher share of their mortgage in the second half of their 25-year term. In contrast, Baby Boomers paid 59% of their total mortgage repayments off in the first half of their term, whilst Generation X paid 60%.
However, had mortgage rates remained unchanged from when Millennials first bought at an average of 1-2% they would have paid around 72% of the total mortgage interest bill during the first half of the loan.
This has opened up an intergenerational divide. Older Millennials who bought early at rock bottom pre-Covid mortgage rates have already been able to repay a large portion of their mortgage. Meanwhile, younger Millennials (alongside subsequent generations) buying later at higher prices and higher mortgage rates are projected to pay higher rates on more of their loan, costing them more in the long term.
The next generation
As Generation Z, born in the late 90’s, start to buy, they face mortgage repayments that are roughly twice those paid by Millennials when they first bought (£1,739pcm v £863pcm). This means the average Generation Z first-time buyer faces total mortgage repayments of £104,400 during the first five years of their loan, compared to £51,800 for Millennials, £55,400 for Generation X, and £46,500 for Baby Boomers (all in 2024 prices). This reflects how Gen Z are likely to be purchasing homes at record-high prices and fairly high interest rates compared to historic standards.
Aneisha Beveridge, Head of Research at Hamptons, said: “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. In the early days, this meant that despite much higher house prices, in real terms, Millennials’ mortgage repayments have looked remarkably similar to the previous two generations.
“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. They’ve taken on lots of debt at record-low rates, only to see those rates rise. And with rates set to stay higher for longer, most Millennials are likely to see their mortgage payments increase as they enter the second half of their mortgage term.
“Stress testing by lenders has made higher rates manageable for most borrowers. But longer-term, higher mortgage payments will still squeeze Millennials at the point they’re starting families and when their careers are close to peaking. It’s likely that money which was enjoyed or invested by previous generations at the same point will be tied up for longer by Millennials and Gen Z’s mortgage bills.”
