The average age of first time buyers without parental help has now reached age 37 and there are predictions that this will soon rise to age 44. As a result of this happening the number of people renting a home has already soared by 40% during the past five years, from 2.4million households to 3.4 million in 2010, with the number of home owners declining.
I believe there is a good chance this trend will continue for two reasons. Firstly, with the increase in tuition fees a 21 year old leaving university could accumulate debts of over £45,000. Add to this the government plans for a statutory pension plan, starting in October 2012 with most people not in a company pension scheme paying 4% of earnings, and it becomes clear that there is going to be a significant increase in young peoples outgoings.
Graduates with these two extra burdens will obviously be squeezed and they will be aware that these commitments will be present for nearly all their working life. This could make it impossible for some to save for a deposit for a house. Even if some can eventually save a deposit they may not be able to afford the mortgage payments. The reason for this is that even with the increase in retirement age; they may have to pay the mortgage off over a much shorter term, as it is conceivable that the age of the first time buyer could increase even further.
With the rental market having undergone such fundamental changes in the last five years and the possibility this will continue due to the factors mentioned earlier, what impact will this have on the long term direction of the housing market? It would appear logical, that if buyers in large numbers disappear from the housing market then we will not suffer boom and bust conditions that we’ve experienced since the 1970’s. It is likely that the market will remain more stable as more buyers will be buying to let. They will not fall in love with the property but will be hard nosed enough to only buy a property if the figures add up. The buy to let market has suffered like the rest of the housing market during the credit crunch, but it could revive if housing trends continue. I believe there will be opportunities for people or companies, who are prepared to enter the market for the long term with a greater emphasis on the yield the property brings rather than the increase in value.
For people who do not own their own home the situation is not so bleak as home ownership has only been a recent phenomena. For example, less than a hundred years ago only 18% of people owned their own property and this figure was still less than 50% before the 1970s. Perhaps we are going back to long term averages as we need to remember that in Germany 90% of properties are rented in the big cities such as Berlin, with overall home ownership standing at around 42%. These figures do not seem to have affected their prosperity and their ability to lead in Europe.
Perhaps our economy needs to consider the German experience and not automatically think that home ownership is key to long term prosperity. It could be argued that renting brings more flexibility to our economy and helps us avoid the boom and bust cycles of the past. The question is; has our love affair with home ownership finally ended or is it just a lovers tiff?
If you want to research and discuss the options you have, it is worth contacting an Independent Financial Adviser who specialises in mortgages to provide you with impartial advice on what is right for you. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett CertPFS
27th June 2011
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