As Home Ownership hits 30 year low, rent guarantee insurance popularity increases
New research reveals major cities across the UK are experiencing the lowest levels of home ownership since the 1980’s, following a peak in the early 2000’s.
In 1986 the average first time buyer could purchase a home for just £30,000, which would barely cover a deposit in 2016 – the average first time buyer now has to find at least £150,000 in today’s market.
Firmly embedded within a housing crisis that extends beyond London, the research also shows that Manchester has experienced the biggest drop; 72% in April 2003 to 58% this year. West Yorkshire, the metropolitan area of the West Midlands and outer London have also recorded double-digit falls too.
In stark comparison, the proportion of private tenants rose from 11% in 2003 to 19% last year, it said. In Greater Manchester, the move was more pronounced – rising from 6% to 20% over the same period.
Explaining the falling rates of home ownership, Matthew Whittaker, chief economist from the Resolution Foundation, said: “What we particularly have seen since 2002-03 is that incomes simply haven’t kept pace with house prices, so it’s not just that house prices have gone up.
“We had access to lots of relatively easy credit and the position we’re in now is that credit has been turned off.
“We have this sense now that house prices have become detached from people’s earnings … and we no longer have the route through 100% mortgages and the like for getting on to the housing ladder.”
The report follows recent data from the government’s English Housing Survey showing the total number of buyers has fallen by a third in 10 years, and those who do buy their first home increasingly rely on the ‘bank of mum and dad’ for help.
The MMR (Mortgage Market Review) has also made borrowing much more difficult, so even those who can prove affordability on a multiplication basis may have trouble in justifying their ability to pay the mortgage when tough scrutinisation is applied by the mortgagee.
The Resolution Foundation’s analysis of the LFS found that home ownership in England peaked in 2003 at 71% of the population and had now dropped to just under 64% – even though 300,000 people have been helped into home ownership through government-backed schemes since 2010.
The reduction in the proportion of people owning their own home was also recorded in other parts of the UK. The figures suggest home ownership:
- Fell from its 2006 peak in Northern Ireland of 73% to 63% now
- Dropped from 69% in Scotland at its 2004 peak to 63% now
- Decreased from 75% in Wales at its 2006 peak to 70% now
As home ownership gradually decreases it can also be attributed to a change in lifestyle, in comparison to the way of life in the 1980’s. Today’s Generation Rent prefer to rent their home for a whole host of reasons, including:
- maximum flexibility,
- avoidance of maintenance and other added costs,
- access to areas/properties that would be financially out of reach to buy property in,
- extra availability to upsize more easily, e.g. when a family grows.
So as the growing gap between earnings and house prices pushes more people into the private rented sector, this is an urgent call to the government to build more homes to bridge the gap.
It is also interesting to note that as more renters enter the private rented sector, more buy to let landlords are understanding the importance of obtaining rent guarantee insurance.
What people forget is that when you have mortgage you are obliged to pay up to a 10% deposit on it, so that the lender has an asset to lean on should you fail to make the mortgage payments. This is why more landlords are understanding the value of rent guarantee insurance, because it takes around the same time to evict a tenant as it does if you fail to pay the mortgage. And, what with less landlords taking deposits, there is all the more reason to take out RGI to ‘lean on’ if the tenant fails to pay their rent.
If you manage to house a non paying ‘professional’ tenant, before long your bills can be astronomical. Gain an understanding of the possible cost of this by adding up eight months rent minimum, add court fees, bailiffs fees, your time, stress and energy. Don’t forget to add in the out of pocket expenses such as damage to the property, removed boilers, copper piping amongst a whole host of other damage that can be done. Environmental health visits and other activities can also delay the process by at least 12 months.
Having protection against this, in association with LandlordReferencing.co.uk’s unique Tenant History reports, is one of the best methods of insuring against misfortune.
- Are you an aspiring first time buyer struggling to get your foot on the property ladder?
- Or do you prefer to rent your home? Whatever your situation, please share it with us here. (link)