Inheritance - the end of a chain

 Focus: The End of a Chain

The accumulation of wealth through bricks and mortar is a British tradition, with a property often being a family’s largest asset. This home is a place of comfort and a source of pride today, but also something of value to be passed on to the next generation in due course.

Joanna Cocking, Head of Prime Country Sales at Hamptons says that when buying a home, most purchasers do not discuss this crucial aspect of homeownership, but it is one of the reasons why they are prepared to commit capital to property and take on mortgages.
 

She comments: “As a result of the readiness to put money into property, a main residence often makes up the largest part of an inheritance.” She points to data showing that probate sales form the second largest source of properties coming onto the market after homes put up for sale by current owner-occupiers.

But analysis by Aneisha Beveridge, Hamptons Head of Research and her team indicates that this flow of funds from parents to children which has supported house prices in recent decades may already have peaked as climbing onto the ladder becomes more difficult. 
 

Beveridge says: “The research that we did into HMRC estate records reveals that fewer people will leave a home behind in years to come. At first the decline will be relatively slow, before an acceleration triggered by falling homeownership rates among younger Baby Boomers and subsequent generations.”

In the 2021-22 tax year, about 200,000 homes, worth just over £50 billion were passed on to heirs, with 79% of those who die aged between 75 and 84 bequeathing a home.

These individuals became homeowners in their twenties or thirties amid the upsurge in property ownership that followed World War Two. In almost all cases, any mortgage has been paid off in full before their demise.

Inheritance tax, at the rate of 40%, swallows up a chunk of more substantial estates. But not a penny of this tax is paid on around 90% of homes that are bequeathed, since most estates fall below the £325,000 threshold. This threshold is £500,000 if a home is left to children.

However, we are drawing closer to the point where a rising number of those who die were born after the post-war homeownership boom.  Some will have acquired a property in later life, but they will be outnumbered by the members of the group who ascended the housing ladder in early adulthood in the 1950s and 1960s.

Since 2007, fewer twenty and thirtysomethings have been able to buy a home. But homeownership rates are also diminishing among fifty and sixtysomethings.

The number of people who become owner occupiers thanks to parental property wealth is shrinking. The youngest Millennials and the members of Generation Z will less and less be able to rely on this support, with implications for the housing market, in London, Leeds, Llandudno and every other location in the decades to come.