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Renting in retirement: young face lifetime under landlords
Soaring house prices mean many people will not be able to get on the property ladder and secure their financial future.
by Michelle McGagh on Jul 23, 2015 at 08:00
Inadequate savings and longer life expectancies are not the only problems young people will face in old age as unaffordable house prices mean a third will still be renting in retirement.
Those aged under 40 are feeling the strain of increasing house prices, with many fearing older generations have pulled the property ladder up after them. Figures from accountants PricewaterhouseCoopers (PwC) show that ‘generation rent’ is expanding and half of those aged under 40 will be living in privately rented accommodation by 2025.
This is due to the ever-larger deposits that are needed to get on the ladder as house prices swell, and it’s not about to get any easier. PwC also predicts that a typical home will cost an average of £360,000 by 2020, which would equate to a deposit of £64,800 – pricing many more out of home ownership.
‘Driven by a decade of soaring house prices before the financial crisis and lower loan-to-value ratios post-crisis, the deposits needed by first-time buyers have risen significantly,’ said Richard Snook, senior economist at PwC.
‘As a result, a generation of private renters have emerged and this will increasingly be the norm for the 20-to-39 age group.’
The grim state of home ownership for young people is backed up by Council of Mortgage Lender figures that show half of those born in 1960 owned their own home by age 30, while just a third of those born in 1980 have achieved the same. Of those born in 1990, just a quarter will own a property by age 30.
Divide will widen
While younger generations may be frustrated by paying off someone else’s mortgage, and often paying more in rent than mortgage repayments, the inability to buy a property will have longer-term consequences.
Research by the University of York’s centre for housing policy estimated that only two-thirds of 60-year-olds will own their own homes within 35 years – leaving a third at the mercy of landlords.
Paying rent in retirement, rather than having the luxury of living in a mortgage-free home, means future pensioners will face a poorer old age and strained finances. It will also have a knock-on effect on public finances as the government will be forced to help those whose pensions do not cover their rents.
Professor Steve Wilcox, author of the research, said there was a number of factors working against younger generations, including later entry into home ownership, older people living longer and staying in their homes, and a growing rental sector which means properties are sold less frequently.
Combined with stricter rules around mortgages and demand outstripping supply, the future isn’t looking rosy.
‘This means an under-served market and more households being propelled into the rental sectors,’ he said.
Neal Hudson, property analyst at estate agents Savills, said the Conservative bedrock policy of creating a nation of homeowners has only applied to generations that have gone before.
‘Rather than creating a nation of home-ownership, it appears that we may have create a generation, or two, of homeowners and we are now faced with its gradual decline,’ he said. ‘Younger people are finding it increasingly difficult to buy in a housing market where prices are many multiples of income and mortgage lending at high loan-to-values is limited and expensive.’
Snook said older generations would find themselves part of the rising number of households who own their home outright – the number of people expected to own unmortgaged property will grow from 8.4 million to 10.6 million by 2020 – but this would be of little comfort to younger people.
‘There is also the rising dichotomy in the market between those mostly older households who own outright and those mostly younger households who still have a mortgage or rent to pay,’ he said.
‘Overall, we project that the proportion of owner-occupiers, with or without a mortgage, will decline from its peak of around 70% in the mid-2000s to around 60% in 2025. The long rise in the UK owner occupation rate in the post-war years seems to have gone into reverse.’
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