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Young bucks: who could benefit from Gen Z and Millennial spending trends?
26 April 2023
In this podcast, “Young Bucks”, Susannah and Sarah explore the spending habits of Gen Z and Millennials and their focus on sustainability.
This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
Susannah Streeter: Hello and welcome to Switch your Money On from Hargreaves Lansdown. I’m Susannah Streeter, I’m Head of Money and Markets here at Hargreaves Lansdown. And, as usual, I’m with Sarah Coles, our head of personal finance. So Sarah, I know we’re both enjoying the delights of living with young people in what is peak revision period. How’s it going for you?
Sarah Coles: Ooh, well horribly really. I can’t wait for it to be over, because being a teenager just seems to be incredibly difficult. Mind you, life isn’t going to get much easier for them over the next few years either, because people in their twenties have got their own difficulties, especially if you move out and then you’ve got the full force of the cost-of-living to face.
Susannah Streeter: And yet the spending of this age group is proving surprisingly robust as we plough through the cost-of-living crisis. And it’s this we’re focusing on today - just how young people are spending and the opportunities it can open up for business in an episode we’re calling ‘young bucks’.
Sarah Coles: Yes, we’ll be talking to Sophie Lund-Yates, our lead equity analyst, about the outlook for some of the companies targeting young people. So, Sophie, there are a few big names on the list today aren’t there?
Sophie Lund-Yates: Hi Sarah, yes. I’ve opted for a big beauty brand, a drinks company cashing in on the boom in alcohol-free drinks, and one of the largest companies in the world.
Sarah Coles: And we’ll also be chatting to Laura Hoy, an ESG analyst at HL, that’s environmental, social and governance. So, Laura, this is an area which young people have proved to be more interested in, isn’t it?
Laura Hoy: Yes, absolutely Sarah, you know there’s quite a strong link between Generation Z and sustainability, so it’s a really interesting topic to explore.
Susannah Streeter: Well, really looking forward to hearing more about that in a bit more detail in a moment Laura, but we’re also going to be speaking to James Poletti, who’s head of strategy at 33 Zero, that’s the arm of a communications agency specialising in climate, tech and lifestyle, and it’s run a study looking at the spending trends of younger people. So, James, great to have you on the podcast, can it really be so different, those trends?
James Poletti: Yes, we’ve discovered some quite interesting facts about the way Gen Z is spending. It might not be exactly what you expect. It certainly surprised us. It’ll be fun taking you through our findings.
Sarah Coles: That sounds like it’s going to be very interesting. Plus, of course, we’ll be speaking to Emma Wall, our Head of Investment Analysis and Research at HL who is going to be talking to Ben James from investment managers, Baillie Gifford. So, there’s plenty coming up, but it’s worth laying out some of the landscape first. So, the past year and a half has been particularly tough for younger people. So, when you first enter the workforce you tend to start out with lower earnings, and once you move into a place of your own, your essential costs swallow a huge chunk of your income. And that’s why the HL Savings & Resilience Barometer shows only 3% of households headed up by Gen Z have enough cash left over at the end of the month to be considered resilient. That’s those aged up to 26. Meanwhile, just 10% of households headed by millennials have enough surplus cash to be resilient. So, Millennials are those people aged 27-42. And younger people have also had less time to build savings, which would protect them from higher costs. So, according to the Barometer, just under half of households have at least 3 months’ worth of essential expenses as an emergency fund, and that falls to around two in five millennial households and just over one in five of Gen Z. Millennials overall emerge as being under real pressure. So, most will fall into the bracket of age 30-49, which the Office for National Statistics says is the most squeezed. So, more people in this age group say their living costs have risen, and around a third are having to borrow more than they did a year earlier, compared to around a fifth overall.
Susannah Streeter: And similarly for Gen Z, those who have moved out of the family home may well be on lower incomes as they study or enter the world of work. Almost all low-income households where the head is aged 18-24 told the Joseph Rowntree Foundation that they’re going without essentials, more than any other age group. And the dream of owning a property for many younger people seems further away than ever. The gap between wages and house prices is widening all over the world, taking away the choice between renting and buying for many young people according to RICS, the royal institution of chartered surveyors. Research by the World Economic Forum focusing on the US and Europe has also shown that younger generations are considerably less likely to own their own home than older generations were at the same age. So, it means renting for longer, putting people at the mercy of those rising rents. The same study showed that, although younger people are now more likely to participate in the stock market, those extra savings in the form of financial wealth do not seem to compensate for the missing housing wealth, as they are concentrated within richer households. So, it’s little wonder an awful lot of younger people still live at home with their parents.
Sarah Coles: Ooh, that’s something to look forward to, isn’t it? But while they may have plenty of other compromises if they’re still living in the family home, actually younger people living with their family are financially far better off, because they have many of their costs covered by their parents. The Barclay’s spending report for March found that Gen-Z were spending a bigger proportion of their income on discretionary purchases than those aged over the age of 25. They are, for example, spending twice as much as older people on fast food and takeaways. And the Office for National Statistics uses debit card data from Revolut to examine spending trends. And they set the index at 100 just before the pandemic, and found that spending more than halved for each age group during the lockdowns, then bounced back. Those aged 16-34 were the first to consistently recover to pre-pandemic levels in summer 2021, and have rebounded further than any age group, so the index is now at almost 176 compared to the average 153.
Susannah Streeter: But it isn’t just a question of how much money younger people have to spend. Their spending habits are also different. Now, one investment bank claims Millennials are prioritising health, wellness and convenience. They’re also cutting impulse purchases and switching away from brands to private labels and buying direct from the manufacturer. Meanwhile, Gen Z are so wedded to social media that some are using it for purchases, and value free delivery, discounts and simplicity when they’re shopping online. But while social media offers huge potential for marketing to this group, there’s also the risk of falling victim to their relative ruthlessness, and the fact they’re more likely than any other age group to unfollow a brand online. Plus, they value sustainability, which is something we will come back to a bit later.
Sarah Coles: But first, let’s get an idea of what all this means for companies operating in the sector, and bring in Sophie Lund-Yates, our Lead Equity Analyst. So, Sophie, can you tell us who you’ve been looking at.
Sophie Lund-Yates: Hi Sarah, it’s fair to say that beauty and wellbeing is an increasingly important trend for adults and young adults in today’s times. And with that in mind, I took a look at L’Oréal, which is the world leader in beauty and has annual revenue approaching €40bn. Now in particular, L’Oréal is making moves into the more luxury end of the wellbeing market with the $2.5bn acquisition of Aesop, the Australian skincare specialist, which was announced in recent weeks. Now I think this end of the market has real growth potential and is arguably more insulated from the ups and downs in the economy. It’s very much tapped into the self-care, treat yourself, category. I also think it’s important to call out the fact that Aesop has a handle on male grooming and skin care, which is also an important and growing market. Now, this deal has potential for L’Oréal but will be a small part of the overall story, in reality. Now the business has a longstanding history of targeted acquisitions and has built up a high-quality portfolio across consumer products like Garnier and Maybelline, and then there’s Luxury titles including Urban Decay, professional products and skincare which includes La Roche-Posay and CeraVe as well. I do think there’s a lot to like about L’Oréal, but the wider beauty industry is going through a lot of change with challenger brands, which means the group, and other beauty and consumer giants, will need to peddle hard to keep their edge in the years ahead.
Susannah Streeter: So that’s beauty. Sophie, how do you see a company like Apple through the lens of this focus on younger spenders?
Sophie Lund-Yates: Yes, absolutely, so I’ve chosen Apple because of a couple of reasons. I won’t be spending, you know, much time on its bread-and-butter business, which is its hardware sales. That’s not because these aren’t important, you know, quite the opposite, but because I’m looking at things through the lens of young people and trends that are important to them. So, we’ve heard that people are spending less on going out and increasing spending on entertaining at home, including streaming. I think this is a trend that’s likely to continue over time and that makes Apple TV something to watch closely, you know it’s not the biggest in the streaming space and that means it has more room to grow so long as the content slate is enticing enough and, you know, that’s something I’d argue needs a bit of work. The other trend that lends itself to younger adults is again this idea of wellness and wellbeing. So, the Apple watch is a really well-positioned product to capture this market and is increasingly important. For context, Wearables, Home and Accessories, which is the reporting division which includes Apple Watches, as well as things like air pods, made up about $13.5bn of Apple’s $117bn net sales in the first quarter. Like with a lot of the big tech names, Apple’s had a strong start to 2023 in terms of its valuation, but there’s a growing number of voices warning that the second half of the year could be challenging for markets, so that is something to keep in mind about companies trading at a premium.
Sarah Coles: And Sophie, for your third company, you’ve been looking at an alcohol giant, so why’s that?
Sophie Lund-Yates: I have indeed. So, the final theme I wanted to dig into for this episode really was the increasing trend for mindful drinking. I should point out that while Gen Z clearly starts well before the legal age of drinking, I’m talking about the trend among Gen Z who are over the age of 18 and Millennials who are cutting back on alcohol. So, while drinks giant Diageo, who I’m going to be looking at here, is responsible for alcoholic drinks, its well-known brands are also in prime position to capitalise on alcohol-free versions of favourites. So, one that springs to mind is the relatively new Guinness zero. So, Guinness is one of the most successful drinks brands ever created and you know I have high hopes for the non-boozy version. At the same time, there’s also an alcohol-free Gordon’s gin, and a host of others. There are smaller brands offering boozeless drinks, but it’s a lot easier to take market share of these drinks when customers already recognise and trust your brand as quality. So essentially, Diageo is a high calibre company in my opinion, and not just because of this, you know specific growth avenue. In terms of risks, I’d say the main thing to consider is the fact that after a 10-year stint in the position, Diageo's Chief Executive is stepping down from the Board. So, succession planning is being handled well in my opinion, but a changing of the guard at the top always adds a layer of strategy and execution risk in the short term.
Susannah Streeter: Lots to be mindful of, so Sophie, thank you very much, lots of companies there to keep an eye on in this sector as well. So, we’ve looked at the opportunities for companies, what about ESG Sarah?
Sarah Coles: Yes, so we have Laura Hoy, our ESG Analyst at HL, so that’s Environmental Social and Governance, and she’s going to look a bit closer. So, Laura how are Gen Z shoppers shaping the new world of retail?
Laura Hoy: Thanks Sarah. You know, as Gen Z’s disposable income grows, their influence over the retail space does too. They’ve got upwards of $360bn worth of spending power in the US alone, so they are a large and growing force that brands really can’t afford to ignore. And they’re throwing their weight behind planet-conscious buying decisions. Studies show three-quarters of them prefer to make their purchase decisions based on sustainability rather than brand names. But even more importantly, they’re a generation of influencers. So, over the past few years, the spending on sustainable brands has increased across all age brackets, and that’s a phenomenon that many have attributed to Gen Z’s influence.
Susannah Streeter: So, what exactly is a sustainable brand then?
Laura Hoy: Well, you know sustainable brands can be a lot of things, but they all have one thing in common, which is they’re trying to reduce consumers’ impact on the planet. So, taking single-use plastics out of packaging, creating repair and recycling programmes to keep items from the landfill and reducing energy consumption are all ways that brands are able to appeal to sustainability-minded consumers. But the fact that sustainability is important to consumers is no secret so marketing minds across the globe have really been looking for ways to highlight the eco-friendly aspects of their products. But the result has been this loss of confidence in what brands say, and ultimately a crackdown on greenwashing that should help to protect consumers from being duped.
Sarah Coles: So, Generation Z’s influence is certainly interesting. How can this trend to be capitalised?
Laura Hoy: The crack-down on greenwashing means brands that are not walking the walk are going to be at a disadvantage, so it’s really key to identify companies that truly have sustainability as a core strategic goal. That means corporate commitments to net zero and a focus on accurately measuring and reducing indirect emissions. A good way to, kind of, get a sense of whether or not a company is truly committed to its sustainability claims is to look for disclosure. Goals like reducing single-use plastic should be backed up by clear measurements that show progress. And, elsewhere, sustainability is important in every category. But there are some areas that consumers care more about than others. So, things like cleaning products, food and groceries and clothing are some areas where eco-friendly credentials are especially important for consumers.
Susannah Streeter: Interesting stuff, Laura. It will be fascinating to see how companies are going to respond both to the challenges and opportunities here. So, it does feel like a good time to bring in James Poletti, Head of Strategy at 33 Zero. That’s the arm of 33 Seconds, which has run a study looking at how the cost-of-living crisis is affecting attitudes to climate change, in particular, among Gen Z and Millennials. So, James, what generally have you found? What’s the most stark finding would you say in this survey when it comes to the impact of the cost-of-living crisis and spending?
James Poletti: One thing that surprised us, and we talked to 1,000 people in the US and 1,000 people in the UK, it’s not so much the Gen Z group that are driving the changes, or at least the overt changes, it’s the older millennial group who are making overt choices at the check-out and the types of brands that they aspire to shop. They have considerably more consumer power, we even found that surveying attitudinal perspectives the millennial group would describe themselves as being more highly engaged, following greater sustainable behaviours such as recycling their clothing and that sort of thing.
Susannah Streeter: That’s interesting, because what we highlighted earlier is that those younger Gen Z part of the population do also have higher disposable income, and that’s partly because they don’t have to pay for their housing costs. So, even though they have more spending power, they’re not using it in that way to really act on behalf of the planet.
James Poletti: The way that we read a lot of this data in a way is that these are sort of generational shifts. What we see happening with the millennial audience is they are you know making an overt choice, but that often stays, you know that’s going to stay at the margins. That’s not really going to shift from the margin to massively impact the way that the mainstream shops and the sort of decision architecture, if you like, for the types of brands that they use. What you see with the younger audience is more of a normalisation. So, the behaviours are way up. 77% buy vintage or second-hand clothing. But they’re more likely to attribute that to it being cheaper and the pleasure they take in selling on and renewing their wardrobe. But it’s a significant shift because there was a previous generation to whom that kind of constant refresh of the wardrobe was much more about fast fashion brands that we know are problematic from an emissions point of view. We look at those things where we can really see normalisation happen. There’s a great phrase that I think is used by Eric Lonergan and Corrinne Sawers in their book ‘Supercharge Me’ that real change comes about when people start doing things because it’s cheaper, easier or their friends are doing it. And that’s kind of the shift that we see from an older age group making conscious choice to a younger age group starting to simply do things because that’s the way the, sort of, culture has shifted. So, you see things like only 19% of Gen Z find owning a nice car very desirable to an ideal lifestyle, whereas the number for millennials is much higher at 35%.
Sarah Coles: So, I mean, we’ve definitely seen in my household. So, I’ve got teenagers and they’re very into sort of things like Vinted and charity shops, and all the rest of it in terms of fashion. But are there any trends that are very specific to different sectors and are there any sectors that sort of stand out where sustainability isn’t a priority for people?
James Poletti: If we stick with fashion, even people who describe sustainability as a high priority, that’s an area where the proposition of fast fashion seems to remain quite sticky. A lot of people describe themselves as preferring to find other ways to make a contribution or address their impact than fashion. That shifts, skews down as we go down the age range, so less the case with the Gen Z audience.
Susannah Streeter: So, it’s fascinating that your research shows this huge popularity of second-hand clothing, almost becoming really mainstream for Gen Z. What impact do you think this will have for the high street?
James Poletti: I think the high streets are in a really interesting place at the moment. There’s a lot of studies out there that point out that Gen Zs are going back to the high street, that they enjoy the experiential dimension of shopping. It’s certainly the case that first sort of rush of novelty in ecommerce has started to ease. There are structural reasons why that’s less attractive, the direct digital marketing costs associated with driving those sales have become incredibly high. So, for the well-established high street fashion brands, the Inditex group and H&M, they’ve got the kind of fully rounded brand that has a sort of real world presence and they’re moving into second hand and marketplace models as well. So, all of those brands can and will provide that kind of experience. There’s a lot of other things. The whole relationship to FMCG changing quite significantly, so it’s always been a very low investment purchase. There’s a sort of advertising arms race to keep those soap brands and household goods front of mind when the shoppers in the supermarket or doing their ecommerce shop, but refill and reuse, refill from concentrate, and some of the ways in which people are consuming more sustainable domestic goods, starts to entrench a different kind of relationship with the brand. So, a brand like faith in nature which is quite dominant in the refill category would start to evolve quite a sticky relationship that perhaps is not so dependent on massive marketing spend. So it kind of shifts the paradigm a bit.
Sarah Coles: One of the things you talked about is the magic coincidence of when something sustainable is something that’s more affordable, but what about when consumers are being asked to spend a bit more to get something that’s sustainable. Is that something that younger shoppers, you know the millennials and the Gen Zs, are able to stretch to? Or are you finding they’re making a choice?
James Poletti: The inflationary pressures that we’re all experiencing is clearly impacting peoples’ ability to choose sustainable. We found 96% of people expressed having been negatively impacted in their ability to choose sustainable options, sort of nudging 50% in this country are finding that they’re unable to make the sustainable purchase that they want to because of cost. But that then is in some contrast with another finding, which is that 47% are mindful that sustainable choices or sustainable options will save them money in the long run. We found many people willing to pay 50% or more for a sustainable option over the unsustainable option and that skewed very heavily up in the US, so the UK was across the board less willing to pay 50% or more than the participants in our US sample. But, even in the UK, 45% of people expressed a willingness to pay 50% or more for fashion. 41% professed a willingness to pay more for food, and 40% a willingness to pay more for cleaning products.
Susannah Streeter: Finally, James, what does your research tell us about gaps in the market when it comes to what younger people want to spend their money on. What other opportunities can you glimpse that perhaps haven’t yet been exploited?
James: The other thing I think is interesting in fashion is what we’ve sort of called the appreciating fashion trend. That’s the increased role of scarcity value in the pricing of fashion. So, high quality goods that are run in limited production that people can wear and then resell potentially at a profit. In the sneaker world is this increasing trend to resell, so shoes that are released in limited quantities. The lucky few that get their hands on those shoes can often then resell them at ten times the price they bought them for. Within food, I’d point to cultivated meat which is going to accelerate over the coming years. It’s going to be a slow burn I think because the production challenges, the cost of production challenges are significant. But what we’ve seen with the alternative meats, meat substitutes is that they’ve plateaued. They’ve, sort of, found their market and not managed to expand beyond that. We know there’s a huge number of committed carnivores that won’t consider anything as a meat substitute. So cultivated meat begins to look interesting once they get the costs somewhere affordable. I think within automotive I would look at the world after car ownership. Cars are still a very important way of getting around amongst the people that we interviewed outside of London. The desire, the sort of emotional attachment to the idea of the car as a sort of lifestyle object, is evaporating. But the, sort of, pragmatic role of the car as the best means of getting around, especially when faced with dismal public transport, is still very much in place. Few people will want to keep a depreciating hunk of metal on their drive, but they will want access to some form of automotive mobility, so I think that will fit into different ways of consuming travel. It might be through a single brand provider that links up multiple modes of transport so from destination X to Y I will use a car and then I will use a train and then I will use a car again at the other end. There are numerous models that are going to be emerging that don’t involve outright ownership. Over the next few years, the smartest brands are going to be busy thinking about pricing models that make the sustainable option more appealing up front.
Susannah Streeter: James, that’s been really fascinating, thank you very much for your insights into just how younger people view the world of spending and sustainability.
James Poletti: Thanks very much for having me on. I hope it’s been illuminating.
Susannah Streeter: So, now I’d like to bring in Emma Wall, our Head of Investment Analysis and Research here at Hargreaves Lansdown. She’s been speaking to Ben James from investment managers, Baillie Gifford.
Emma Wall: Hi Ben.
Ben James: Hello Emma.
Emma Wall: So, we’re talking today about millennials. Perhaps we can start with digitalisation and the real move to living your life online, which is very popular with this generation and really accelerated through the period of covid, didn’t it?
Ben James: It did, so you’ll hear phrases like digital natives for Millennials and Gen Zs. They’re not one homogenous bunch but I’m thinking about Millennials being born from 1981, sort of, 1996 and Gen Z’s being born in 1997 through till 2010, 2012, 2015. And, if you think about what those two generations have grown up with, the Millennials, when they were 16, the internet started kicking in for real and mobile phones took off. And then for Gen Z’s, they’ve lived in a world with the internet being everywhere and so they’re very comfortable with it being part of normal, everyday life. And I think one of the most interesting things about Gen Zs, so folks who are 25 at the eldest, through to those who may be only 10 years old at the moment, a lot of their values are focused on identity, and they like to, and this is coming from a 42-year-old white, middle aged male from Edinburgh, they like to hang around and communicate with folks in their own group. And that might not necessarily be the people in their school or their workplace. They’ll find their groups online. Because they can access them around the world. I think the fact that they’ve just grown up with technology, the internet, mobile phones as part of normal everyday life means this is how they communicate and how they want to live their life, and how they operate.
Emma Wall: And there’s two ways we can think about this in terms of investment, aren’t there, there are the pure plays on this type of social interaction and this type of digitalisation, and there’s also the companies who have been early adopters, so say they may be in more traditional sectors but they’ve noticed this move to online, to the cloud, and they’ve been early adopters and made sure that their product or their service is fully adaptable and fully, kind of, engaged and accessible for this generation. Perhaps we could start with the pure plays though, first of all, and you have a couple, kind of, in the portfolio don’t you?
Ben James: That’s right, so I think the meme stock phenomenon is really interesting, because I think it’s a symptom of this generation, Gen Z and the Millennial generation. Their background and their current financial position. If you think about when Millennials came to work, that would have been in the mid-noughties and even at the beginning of the great financial crisis. And starting work in a recession, there’s data to show that the group that came to work after the great financial crisis were something like 13% worse off in terms of their income versus previous generations at that same age. And looking at what happens after recessions it’s likely that they won’t make that up. And then the Gen Z generation has come to work, the eldest will have come to work in and around 2019/2020 and, therefore, they hit work when the covid pandemic hits and there’s great disruption to the global economy. So, first of all, everyone’s locked at home and, in the US in particular, they get extra cash through cheques from the government. And they’re looking to fill their time, and they are a generation that is comfortable with communicating and therefore trading online and they also see it as potentially a way of fighting back against the older generations who they have a greater level of distrust for than previous generations have. And so, yes, you see some really interesting things happen in 2021/22. The surge of the likes of Gamestop, essentially a similar company to Blockbuster but for game videos and computer games and so on. There was a real charge online driven by the Reddit channel, which is a sort of communication and social media platform channel, Wallstreet Bets, to push against the hedge funds, the Wall Street hedge funds that were shorting Gamestop, and they saw it as a social movement in fact to invest in Gamestop. The stock appreciated far more than the fundamentals justified and so we saw that come back down. But in terms of our portfolio, we have some interesting companies which actually we think play into the qualities and values of the Generation Z, which tend to be actually some quite strong companies. I mean Tesla is actually the most broadly held company within Millennial and Gen Z portfolios, according to one piece of data I was looking at. And that’s probably because it aligns with a number of their values and beliefs in the world. They’re very concerned about climate change and sustainability. They’re also into technology, so Tesla which is a (inverted commas) cool stock because of the brand and what it’s trying to do and the technology it has but also the fact that it is, on the surface and core to its mission, driving the world towards more sustainable means of transport. Other stocks that are in the portfolio that play towards Millennials and Gen Z’s happiness with living online are companies like Roblox which is the gaming company. It’s a company which has been around for 18 years and its vision was to create a virtual space where people play, work, learn and create together, and that vision has not changed. The companies leading the charge in ushering in a new category that dubs itself the sort of 3D human co-experience. And I don’t like to use the term really, the metaverse but, essentially, it’s an early version of living your life online. It is very popular with 13-17 year olds, but actually one-fifth of its users are over the age of 17 and that makes it quite interesting for advertisers. It’s making it an immersive advertising platform. So, it’s not essentially having to, like we see on YouTube, where you have a break in the content to watch an advert. Instead, you could be on an experience on Roblox, such as fishing or gaming with your friends online together, and there’s adverts there like a digital billboard. Or you can buy Nike shoes or visit the Walmart store or whatever on Roblox. And now they have partnerships with over 90 of the world’s most well-known brands, everything from Gucci to Burberry to the NFL, Warner Brothers, Nascar and so on. So, I think that’s a really interesting development of how Generation Z and Millennials might shift conventional or traditional advertising models or business models in the future.
Emma Wall: Ben, thank you very much.
Ben James: Thank you.
Susannah Streeter: That was Emma Wall, speaking to Ben James from investment managers, Baillie Gifford, and please bear in mind these are the views of the fund manager and are not individual stock recommendations. You’re listening to Switch Your Money On from Hargreaves Lansdown. And now it’s time for our stat of the week, Sarah, a moment I know you’re always waiting for. There’s a bit of dinner party conversation fodder for you.
Sarah Coles: You know I can never wait. I’m always keen to learn stuff that might come in handy for the pub quiz later.
Susannah Streeter: Well, as we know how everyone loves to talk about house prices, wherever you are. So, we know right now that house prices are having a bit of a wobble, but where do you reckon the cost of a first house in the UK will be by 2030? Now you are our house price guru, I would say, here at Hargreaves Lansdown. So, what do you think? This year, according to compare the market, it’s around two hundred and sixty-three thousand pounds. But in 7 years’ time, what’s your best guess?
Sarah Coles: Oh, it’s always the big question ‘what’s going to happen to house prices?’ If you kind of went back to the beginning of the year all the predictions were round about 10% of a fall in house prices over the year. But some things have changed since then, so we’re also hearing that we could see interest rates return to pre-pandemic levels. That’s once the current super-high inflation is under control and, of course, that would have a massive impact on mortgages, which would then have a knock-on impact on the house market itself.
Susannah Streeter: Yes, you are right that was an IMF forecast out earlier this month. So, what do you think that might mean then for the trajectory of house prices, Sarah? Go on, peer into your crystal ball.
Sarah Coles: Guessing these things, you’re always guaranteed to be wrong, whatever you say, but I’ll go for a nice round figure like £300,000.
Susannah Streeter: Well, it is actually forecast to be a bit higher than that. You tried hard. Compare the market reckon the average cost of a first house in the UK will be £316,000 and £323,000 by 2031. But, as we know, judging where house prices will go is a very tricky business.
Sarah Coles: Yes, I think it’s almost impossible to guess, but I think that given that 2031 is roughly when our kids will be dreaming of owning a home, it sounds distinctly like, as usual, they’re going to be coming back to the bank of mum for help. Which is always a pleasure.
Susannah Streeter: A lot more expensive than paying for trainers and a burger on a Friday night.
Sarah Coles: Oh gosh, yes. The things we have to look forward to!
Susannah Streeter: Well, that’s all from us this time, but before we go, we need to remind you that this was recorded on April 17 2023, and all information was correct at the time of recording.
Sarah Coles: Nothing in this podcast is personal advice. You should seek advice if you’re not sure what’s right for you. Unlike the security offered by cash, investments rise and fall in value, so you could get back less than you invest.
Susannah Streeter: Yes, this is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
Sarah Coles: And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.
Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So all that’s left is for me to thank our guests, James, Ben, Sophie, Laura, Emma and our producer Elizabeth Hotson.
Susannah Streeter: Thank you so much for listening. We’ll be back again soon, goodbye.