Generation Rent? The Future of the UK Property Market

Generation Rent? The Future of the UK Property Market

by Rebecca Hall on 21 Jul, 2011

A number of recent housing market surveys have highlighted worrying trends in home-ownership aspirations. Halifax’s survey of 8000 first time buyers revealed that while most still hope to own their own bricks and mortar, almost two thirds of them feel this is unlikely to become a reality, largely due to deposit requirements inflating beyond their budgets. The painful memory of the credit crunch, a slow recovery from recession and the necessary but tough changes to lending criteria have all cultured a belief that banks simply won’t lend, compounding the crisis. The knock-on effects of a generation stranded in tenancy have sparked new fears for the health of the housing market.

‘Generation Rent’ is the new tag describing those who find themselves in the midst of a property conundrum. But the seriousness of its implications for the UK economy cannot be summed up so concisely. A fall in home-ownership and equity impacts at every level, from first time purchases through to second homes and retirement. Many reports recognise the market will reach a stalemate, resulting in a significant lack of funding for new builds and greater pressure on an already limited supply of property. A minimum deposit on a first home in London now sits in the region of 21% of market value (which can be up to £50,000). Of those who waited out the recession before stepping up to the ladder, many are now finding the first rung a step too far.

Landlords will be beneficiaries of this predicament, given rising demand for rental properties and greater returns on buy-to-let investment. Online property portal Rightmove saw searches for rental property rise by nearly two-thirds in the last 2 years while the amount of rental property actually available (based on advertisement) dropped by almost a quarter. A persistent trend of buy-to-let is implicit in bias toward renting and the pricing out of first time buyers. Saving a deposit while renting remains the only option for some and an impossibility for many – the fall in real incomes and prediction that rent prices will rocket in the next year is doing little to encourage enthusiasm for long-term saving among Generation Rent. The National Housing Association released figures showing first time buyers have an average age of 37, after spending an average of 16 years renting. The burgeoning size of deposits suggests that the age at which the financially unassisted can buy their first home will rise to 43 over the next few years.

Restoration of first time buyers’ faith in mortgage lenders and the value of long-term savings appears key to the reversal of the crisis, as do changes to the Capital Gains taxation on first homes and buy-to-let property investments. Investing in your own home has been the foundation to financial stability for many years, but without ownership, subsidence of the housing market is pointing to shaky recovery of the economy as a whole.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.