The Intermediary Mortgage Lenders Association (IMLA) has forecast that 51% of residential homes in the UK will be rented rather than owner occupied by 2032 as house ownership is predicted to get further out of reach for many.
To build up the picture of how the rental and owner occupier mix is changing, owner-occupation peaked in 2003 at 71% and has since declined to 68% in 2007 then 64% in 2012 and home ownership is now at its lowest level since the 1980’s, despite initiatives such as Help to Buy coming into play over the last couple of years to help stimulate new housing development and aid people in getting on the ladder.
“Growth of the private rented sector has been from a historically low base and has been fuelled by strong underlying demand,” said IMLA Executive Director Peter Williams. “If current trends continue then demand for private rented property is likely to drive further expansion and increase the burden on our already-overstretched housing stock, at a time when first-time buyers are also feeling the pressure of new mortgage market regulations.”
The price of buying a home is the biggest contributor to the shift to rental, with many first time buyers, particularly those hoping to buy on their own, being effectively priced out of the market.
Based on the average wage (£26,500) and typical borrowing rate of 4.5 x annual salary the average homebuyer could afford to borrow a maximum of £119,250. Then take into account the average national price of a first time buyer flat of £158,872, with a 10% deposit of £15,887 and a £119,250 mortgage there is still a 15% shortfall, £23,735 needed to make it work.
The rate of change in house prices and average earnings is exacerbating the situation, according to the Office of National Statistics average wages have gone up just 1.6% last year against a 5.4% increase in the price of a flat.
In this area prices are greater than the national average which makes it even more challenging to get on the ladder meaning more people are staying at home longer or opting for rental.
The upside of this for landlords is that rental values are strong, there is often a choice of tenant and sought after properties are unlikely to face long void periods. For those growing investment portfolios demand from tenants is set to continue.
This is also good news for developers as they have the option to sell or rent new property as there are eager buyers and tenants already waiting.
Statistics and quote from ‘Over half of UK homes will be rented by 2032‘