Homeownership: the preserve of the rich?


One of the most striking findings of our Squeezed Britain report, which sets out the economic position of the squeezed middle in forensic detail, is that home ownership is now out of reach for many people on low to middle incomes (LMI).

On the basis of current incomes, house prices and the loan-to-value ratios now available, it would take a first-time buyer on a low to middle income 22 years to save for a deposit compared to three to five years in the 1980s and 1990s.

With low to middle income households historically heavily reliant on high LTV mortgages – one in five took out a 100% mortgage in 2005-06 – these trends are unlikely to change anytime soon.

As social housing is now predominantly targeted at the most vulnerable in society (and rightly so), this means that the private rental sector is far more than a stop-gap for many LMI households.

Indeed, the proportion of LMI households aged under 35 renting privately has more than tripled, from 14% in the late 1980s to 47% now, with many raising families in rental accommodation.

In just the last six years the number of LMIs under 35 who own their own home has nosedived from 51% to 34%.

This all suggests a permanent decline in home ownership with any significant reversal looking unlikely.

People on low to middle incomes, whilst not shut out of the housing market completely, look set to continue to find it very difficult to buy property, and consequently will live in rental accommodation for much longer.

In some sense, this would move the UK closer to countries like the US, the Netherlands and Germany, where long-term renting is already far more common.

However, the UK’s rental market remains a cottage industry, with more than one tenant in four not considering it to be “good tenure”.

Therefore, we need to develop new ways of ensuring rental properties built at scale, designed for efficiency, provide longer-term security for tenants.

This post originally appeared on Mortgage Solutions