Generation Z: own home without a mortgage

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Generation Z may not need to take out a mortgage. Experts spoke about how the situation on the housing market in Europe will develop in the coming years.

If you ask millennials—the generation between the ages of 20 and 40—if they’re thinking about buying a home, you’ll likely see a wry grin on their face. The idea of ​​taking out a mortgage on your income alone is often unthinkable, and those who own property usually inherit it.

Because the housing crisis rages across Europe, many members of Generation Z born after 2000 may soon discover that they can become winners. Analyzing mortgage lending trends and other data, a study published by theconversion.com all points to a gradual refusal of green residents from long-term housing obligations.

According to experts, generation Z benefits from falling birth rates in Europe, which is one of the lowest in the world and amounts to 1.53 children per woman. Simply put, there will be fewer young people and more housing to inherit.

In tough times, getting a mortgage can be challenging as banks require savings, income, a stable job and a large down payment. If someone meets these criteria, then on average they will “hang a yoke around their neck” for as much as 25 years.

In a job market characterized by temporary positions and low, stagnant wages, many people will find it difficult to take out a mortgage, let alone pay it off. The prospect of such a loan is especially daunting at a time when rising mortgage rates are driving up the cost of living in Europe and beyond. This condition is already influencing how Gen Z approaches long-term commitments such as buying a home.

Therefore the fact that Fewer mortgages are being issued across Europe, is not surprising, especially given rapidly rising interest rates and skyrocketing real estate prices. This slowdown in mortgage demand looks set to continue over the long term for a number of reasons.

In the European Union, the average age at which people first purchase property is 34 years. The average mortgage term is 25 years, which means that repayment is typically completed by age 59, just before retirement age, which is 65 in most member countries. In 2022, 69.1% of Europeans were home owners, but only 24.7% had a loan. This rate varies widely across the Old Continent, and there is little correlation between ownership levels and the number of active mortgages.

In some northern European countries, the number of mortgages is actually growing. For example in the Netherlands, 61% of homeowners currently have one. In contrast, this percentage is much lower in countries such as Italy, where only 14.6% of property owners have a mortgage. This difference may be due to more frequent consumption of liquids or to stronger and longer-standing traditions in some countries regarding inheritance.

Spain is a prime example of the changes already underway. It is above average in life expectancy and home ownership rates (especially among older generations): the average Spaniard first buys property at 41 and receives an inheritance at 51. However, the number of inherited properties reaches new highs year after year. From 2021 to 2022, the number of houses inherited in Spain increased by 3.7%, with more than 17,800 houses inherited within its borders every month.

The growth rate of “legacy real estate” is so massive that it is likely to lead to decreased demand for mortgages. However, the cost of inheritance varies greatly between countries and it is difficult to make predictions for the whole of Europe. There are also huge differences in factors such as the age at which someone decides to leave the family home. This age tends to be higher in southern Europe: adult children usually live with their parents:

• up to 30.7 years in Greece,
• 30.3 years in Spain
• 30 years in Italy.

In contrast, in Finland people typically leave home at age 21.4, while the rate is similarly low throughout Scandinavia. In France, adults move at 23.4 years old, and in Germany at 23.8 years old. Many of these ages saw long-term increases between 2012 and 2022, according to Eurostat.

However Youth independence is not associated with an increase in mortgages. The 62.54% drop in numbers in Spain between 2007 and 2023 is reflected in figures across Europe. From 2022 to 2023, Belgium saw a decline of 33.8%, while from 2021 to 2022, France experienced a decline of approximately 47.49%.

European Central Bank annual data released in November 2023 also shows annual declines of 61% in Slovakia, 57% in Austria, 40% in Luxembourg and 23% in Estonia. In Europe as a whole, the number of new mortgage loans fell by 32% last year.

Generation Z challenges: although they will face many other challenges, such as securing stable employment contracts, housing may not be a major concern for most in the future. Baby Boomers Growing Up means that a huge amount of property is passing into the hands of the richest households: already in 2015, inheritances averaged $196,247 per person in the richest 20% of OECD countries. This amount has already increased by 50% in less than ten years.

This condition will benefit millennials to some extent (but those with fewer siblings), as many wealthier Gen Zers may will not have to share the inheritance with your parents, who often own property. This prospect, coupled with strict mortgage access conditions in an inhospitable job market, will pose a simple question for much of Generation Z: Why take on the risk, long-term commitment and additional costs of a mortgage if it’s ultimately not necessary?

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