Why can't Gen Z afford to buy a house?

The majority of young people, in Italy and abroad, feel perpetually "trapped" in the rental market, lacking the economic means to purchase a property. To describe the growing number of people who lack realistic prospects of buying a home, one of the most pressing issues for new generations, the term "Generation Rent" has been coined. According to research conducted by the Financial Times, around 40% of those aged 18 to 34 are forced to live with their parents, and while 80% of these believe there is a housing crisis, only 56% of those over 65 share the same opinion. In 2022, homeowners under 35 represented just 10% of all homeowners in England. The last time English house prices were as inaccessible as they are today was in 1876, and in recent years they would have increased to such an extent that – as Dazed writes – almost only young people from wealthy families have concrete possibilities of buying a home.

Why it's hard to get a mortgage

In Italy and beyond, while salaries remain virtually unchanged the demand for houses is greater than the supply, which contributes to driving up housing prices – all while mortgage interest rates are still very unfavorable. In terms of interest, taking out a mortgage in 2024 costs practically double compared to two years ago. In particular, new fixed-rate mortgages have gone from an average interest of about 1.8% to 4.4% – with monthly payments that are therefore much higher than before. Rates vary depending on bank offers, as well as whether you choose a fixed or variable rate, but for example, if you activate a loan of 150,000 euros for a duration of 20 years, today the monthly installment could be around 1,000 euros, a difference of more or less 500 euros compared to a few years ago. With higher rates the amount banks are willing to lend also decreases, while the repayment period lengthens – with significant repercussions on buyers, especially if they are young and have limited savings.

Fixed or variable rate?

In Italy, variable-rate mortgages are quite common although they are generally considered risky, precisely because the installment to be paid may increase over time – exactly as happened in the last year due to the increase in inflation. Usually, the fixed-rate mortgage entails a higher monthly installment but it remains the same; the variable rate has a lower one, albeit subject to market conditions. Sometimes it is believed that the decision to activate a variable-rate mortgage is the result of a lack of financial education, but it is not always the case: for many people, it has been the only way to get a loan, especially in the last two years. Sometimes, in fact, variable-rate mortgages are the only ones accessible to certain customers – especially those with lower incomes and with little room to buy a house (as often are younger people). Predicting a lower installment than fixed-rate mortgages, variable ones are the only ones granted by the bank. Many argue that there is a widespread misconception in the way people buy houses in Italy. Typically, you start looking around and visit potential homes until you find the right one, and it is only at this point that you apply for a mortgage. The risk, however, is that when faced with less than ideal conditions in loan agreements, one tends to accept them anyway, with all the consequences, because by now you are determined to buy the selected house. This is a mechanism that can be reversed through the so-called pre-approval of the mortgage, which consists of getting approved by the bank for a certain loan whose conditions remain valid for six months: in this way, you approach the real estate market more aware of what the real spending margin is.