Homeownership rates have surged since the Second World War, meaning that people passing away today are more likely to have owned their own home than ever before. This also means that the share of estates containing residential property being passed on has risen steadily.
The latest figures from HMRC show that a record 79.2% of UK inheritances in the 2021-2022 tax year contained a home, equating to 175,000 of the 221,000 estates containing assets. This proportion is an increase from 74% in the preceding financial year and a figure of less than 50% in the early 1970s.
However of the 221,000 estates containing assets left in the 2021-21 tax year, only 13% paid inheritance tax (IHT). IHT has become something of a political football over recent years and there is speculation that the Chancellor, Rachel Reeves, will announce changes to raise more money from IHT in the Budget on October 30th.
Inheriting a property has been a key route to financial security over recent years due to rapidly rising house prices. For a small – but growing – minority of those under the age of 40, inheriting a home will be their path to becoming a property owner.
That said, most people who inherit a property are already homeowners (rather than tenants), thereby helping to compound the wealth divide between (but also within) generations, meaning that properties inherited from a parent or grandparent tend to be sold rather than lived in. The proceeds are typically used to pay off mortgages, upsize to a larger home or help offspring onto the property ladder.
However, this record share of property inheritance could be at or approaching the peak. The ability to pass a home onto children or grandchildren looks set to decline in future given that homeownership rates among older generations have probably peaked.
According to the English Housing Survey, 45% of 25- to 34-year-olds owned their homes in 2022-2023. Although this is higher than the trough in 2013-14, when homeownership levels among this cohort fell to 36%, it is significantly lower than in 2003-4, when 59% of people in this age group owned their own bricks and mortar.
Rates of homeownership have even begun to decline among the oldest generations. While the proportion of those aged over 65 who owned their homes rose steadily from 71% in 2003-4 to 80% in 2019-2020, it has since dropped slightly, hitting 78% in 2022-3.
Despite falling homeownership rates amongst older generations, the pace of house price growth homeowners have witnessed over their lifetime has left many of them debt-free. The proportion of properties that were still mortgaged at the time of the owner’s death has fallen from 14% a decade ago to around 11% in 2021-2. This equates to about £1.9bn of lending, which will be repaid from the proceeds of the estate. The size of the average loan has nevertheless increased, from £65,000 a decade ago to £100,000.
Indeed, over the longer term, we expect the share of estates containing mortgage debt to begin to rise, reflecting the fact people are increasingly scrambling onto the housing ladder later in life, purchasing higher-value homes and taking out longer mortgage terms to manage affordability.
