Home-ownership is this country’s preferred tenure, housing nearly two-thirds (64%) of household and surveys repeatedly show that most people aspire to own their own home. Unfortunately, that aspiration has become increasingly unrealised for many people.
Home-ownership has fallen from its peak in the early 2000s (71% of households) while the number of mortgaged home-ownership stagnated through the 1990s and early 2000s. That stagnation reflects several factors including the ageing baby boomer generation moving into outright ownership and constrained housing affordability amongst lower income households. However, it was the credit crunch that is responsible for most of the decline in mortgaged home-ownership.
The credit crunch led to the withdrawal of higher loan-to-value mortgages and this created a massive deposit barrier preventing many prospective first-time buyers from buying. Mortgaged home-ownership has fallen by over one million households since 2007 (chart below).
The fall in home-ownership would not necessarily be a problem if the alternatives offered similar benefits such as security of tenure, cost, quality, advantageous tax incentives, and the ability to minimise housing costs in retirement. Unfortunately, many of those priced out of home-ownership end up living in the private rented sector, which has none of those benefits. Reforming the private rented sector to offer at least some of those benefits would be an improvement but home-ownership remains the preferred tenure, not least thanks to the continued assumption that house prices will rise in the future.
Recent years have seen housing policy target first-time buyers with the intention of increasing home-ownership. Higher loan-to-value mortgages have increased in availability and have reduced their mortgage rate premium to lower loan-to-value products. Meanwhile, the changes to Stamp Duty Land Tax have hit investors and helped first-time buyers replace them in all but the highest house price markets. Surveys now suggest that mortgaged home-ownership has started to rise again in the last couple of years.
Home-ownership may be rising again but many people have and will continue to be affected by both the credit crunch and high house prices relative to incomes. As the chart below shows, home-ownership rates for younger generations are recovering but are still lower than for previous generations at any given age. It’s possible that these generations could see lower home-ownership rates forever even if the mortgage market continues to improve as house price affordability remains a constraint, particularly for less wealthy and lower income households.