Just under 100 years ago, in 1914, the proportion of owner-occupiers in the UK compared to other forms of tenure was just 10%. Today, it is 70%, the balance being made up by private rented (10%) and council / housing association (20%) property.
The mortgage market, which accounts for 39% of ALL properties, is therefore highly important to the health of the housing market. Currently, the mortgage market is constrained by:
- Lack of money available to lend
- Risk-averse attitude amongst lenders
- Disconnect between Bank of England base rates and mortgage rates.
As a result monthly mortgage approvals are running at just 50,000 per month compared to 100,000 per month in the decade up to 2007. Activity is self-evidently down however prices are not decreasing significantly because monthly mortgage repayments are still affordable.
What is affecting activity is the size of deposit required by all lenders. Where deposits are small (less than 30% of value), interest rates are high but where borrowers can provide a large deposit (30% of value or more), interest rates are low and still affordable. With ongoing problems in the financial markets, we do not expect this new paradigm to change for the foreseeable future.
What does this mean for the housing market?
We expect a fundamental shift in attitude amongst potential house-buyers. Potential buyers will have to make a choice between saving for a deposit in order to buy their first house or foregoing home-ownership altogether. We believe that both of these trends will lead to a growing rented sector.
With the government under financial pressure of its own, we expect that the private sector will respond by increasing supply over the medium term.
Is this outlook bad for the economy?
Not necessarily if one looks at other prosperous European countries. In Germany, the owner-occupied sector accounts for just 45% of homes and, in France, it is 57% (UK = 70%) so this demonstrates that a larger rented sector is not necessarily a bad thing in itself.
One thing is certain; unless UK mortgage availability changes, we anticipate a change in the UK’s housing tenure mix over the coming years.
