Young homeowners are now turning to a savvy strategy known as ‘house hacking’ to keep up with mortgage payments in these financially challenging times. This innovative approach is becoming a lifeline for many, particularly for those stepping onto the property ladder for the first time.
The Telegraph featured David*, a 32-year-old office manager, who is about to embark on a new journey as a homeowner. Despite earning a decent salary of £40,000 per year, David hasn’t seen a significant pay rise in three years, barely keeping up with inflation. This has led him to feel the pinch of the current cost of living crisis more than ever.
But things are looking up for David as he moves into his first property next month. His secret to easing financial stress? Renting out a spare room in his new two-bedroom flat in Catford, South-East London. By charging a lodger £800-£900 a month, David can cover his entire mortgage of £776. This simple yet effective strategy is what’s known as ‘house hacking’.
The Rise of House Hacking in a Tough Market
The concept of house hacking is increasingly becoming a go-to solution for young homeowners. The UK property market presents a daunting landscape with soaring house prices, stagnating wages, and rampant inflation. For many millennials and Generation Z, the dream of owning a home is often realised only with significant financial help from their parents.
The Institute for Fiscal Studies (IFS) reports that nearly half of first-time buyers in their 20s received aid from family, averaging around £25,000, and even higher in the South East. David himself is a beneficiary of this trend, having received a generous £100,000 gift from his parents, combined with his own savings of £60,000.
A New Generation of Landlords Emerges
Interestingly, the surge in house hacking is changing the face of the landlord demographic. Matt Hutchinson from SpareRoom notes a significant increase in young live-in landlords offering spare rooms, a shift from the usual retirees and grandparents. Many of these new landlords initially planned to live alone but have turned to house hacking as a financial necessity due to rising interest rates and economic changes.
The Intergenerational Debate
However, not everyone views this trend positively. Liz Emerson from the Intergenerational Foundation highlights a concerning aspect: house hacking may exacerbate inequality. She argues that it benefits primarily those from wealthier backgrounds, supported by the ‘Bank of Mum and Dad’, thus widening the gap between the financially privileged and less affluent young people.
The role of parental support is pivotal in this scenario. The likelihood of a person buying a property significantly increases if their parents own their home. Research shows that about half of 25 to 39-year-olds with homeowner parents have managed to purchase a property, compared to just over a fifth for children of renters.
A New Path to Financial Security
For David and many like him, house hacking is not just about managing finances but also about planning for the future. By renting out his spare room, David anticipates being £10,000 a year better off, allowing him to overpay his mortgage and enjoy some of life’s luxuries, like buying quality furniture and treating his mother to an Abba Voyage show, a small gesture of gratitude for her invaluable help.
In conclusion, while ‘house hacking’ offers a creative solution for young Brits grappling with the housing market’s challenges, it also shines a light on the deeper issues of inequality and the pivotal role of family wealth in property ownership. As this trend continues to grow, it raises important questions about the future of home ownership and financial fairness across generations.
* Name changed for privacy reasons.