How “Generational Rent” Approaches Buying a Home in 2022
Millennials and Generation Z are the largest cohort of potential buyers today, the majority of whom are first-time buyers eager to get their foot on the property ladder. As market volume declines and pent-up demand increases, 61% of millennials and Gen Zers who intend to buy a home are considering applying for a mortgage this year.
For years, the dominant market narrative defining these generations has been early digital experiences and poor financial habits. However, new data released in Maxwell’s H1 2022 Millennial and Gen Z Borrower Sentiment Report goes beyond simplistic stereotypes by exploring the needs, habits and preferences of 1,000 respondents planning to borrow. apply for a mortgage in the next few years.
As mortgage rates rise, inventories remain low, and digital trends accelerate, navigating the changing borrower landscape requires tailored strategies. Loan officers need to understand what modern Millennials and Gen Z homebuyers expect from their lenders. For mortgage professionals looking to sustain their lending volume through the rest of the year and beyond, understanding the motivations, behaviors and barriers to entry of these borrowers will only become more vital to success.
Creative pathways to homeownership in a tough market
As inflation begins to bite, rising rental costs are pushing more millennials and Gen Zers to apply for mortgages. While more than a quarter of respondents still live with their parents, 45% are currently tenants and more than half (51%) want to buy a home because the cost of rent is too high. This is especially true for city dwellers who have experienced significant increases in rental prices over the past decade.
Despite fears that their down payment savings won’t measure up to traditional standards, millennial and Gen Z borrowers are ready to become homeowners. With home prices and competition among buyers expected to increase further this year, 41% plan to apply for a mortgage on their own and nearly 10% with friends. While traditionally borrowers tend to wait for a 20% down payment, this generation thinks differently. Today, 78% would apply for a loan with less than the traditional down payment of 20%, while more than half (55%) plan to put down at least 10%.
Obstacles to buying a home
Many Millennials and Gen Z homebuyers worry about the effects of personal finance issues such as insufficient savings, increased debt, and poor credit when applying for a loan. Almost half (45%) think the mortgage process is too expensive, and a quarter don’t feel confident about getting a mortgage due to their financial difficulties. In some cases, these potential borrowers have the personal experience to back up this concern.
Data from the Federal Reserve indicates that overall, millennials have more than $1 trillion in debt, with credit card debt making up the largest portion. The report found that while the majority (75%) feel confident about getting a mortgage, a high percentage of Millennials and Gen Z buyers see insufficient down payment or closing funds (46%), their high debt-to-income ratio (45%) and bad or no credit (38%) as barriers to approval. Only 13% of respondents have ratings that would be considered exceptional (>799), while 30% have fair or poor credit ratings (
What borrowers look for in a lender
A lack of knowledge about mortgage processes can impact trust levels, adding to financial concerns. More than a quarter (27%) feel they have “very little” or “no” knowledge of the mortgage process. As such, personal support is important for this demographic. In fact, more than 78% of respondents indicate that personalized service is important to them.
Loan officers should take the time to build that trust through value-added resources, training, and support. By taking them step-by-step through the process, lenders can build trust with their clients, build a solid reputation, earn repeat and referral business, and increase home ownership in their communities.
While large lenders and online lenders continue to hold a significant market share, when it comes to choosing a lender, the majority of Millennials and Gen Z borrowers intend to shop around for find the right person. This generation doesn’t seem too impressed with the big names, preferring instead to seek out the loan option that best suits their personal needs. More than half of all respondents plan to do their own initial research online, with nearly three in five planning to compare posted rates, 50% intending to read customer reviews and 46% aiming to research their options on a lender’s website.
When asked about their plans for a future mortgage, 28% think they will use a local community lender, significantly more than the 15% who plan to use an online lender. Lenders who can offer both an in-person and online mortgage experience will gain a significant competitive advantage. By creating an enhanced online presence, local lenders can offer expertise through digital content, marketing and outreach, which will be crucial in positioning them as a useful thought leader in the space.
In today’s market, where total loan origination spend is at an all-time high and volumes continue to decline, renormalizing to historic levels, it can be easy to lose sight of the strong home buying potential millennials and Gen Z. Lenders need to capture business from borrowers wherever possible, and local lenders are well positioned to guide this demographic into homeownership by launching new lending products and channels more diverse that lower the barrier to entry for first-time homebuyers. Backed by a hyper-personalized, digitally-enhanced support service, these lenders can win business from the largest cohorts of homebuyers today (and tomorrow).
Read the full report and find out how Maxwell’s comprehensive mortgage solutions can help lenders turn tenants into homeowners at himaxwell.com.