Stephen Johnson: The UK Housing landscape – past and present

There has been some discussion of late across national media around home ownership falling to its lowest level in the UK for the past 30 years, with the number of private renters soaring.

Stephen Johnson
4th March 2015
Stephen Johnson

Young people looking to get on the property ladder are being locked out of the market and spilling into the private rental sector in increasing numbers with the implications being numerous.

A starting point is to set the scene with a look back across the structural shift we have seen across the UK housing landscape over the past 20 years. The supply and demand imbalance is noticeable, particularly with the shortage of new housing pitched against increasing household formation due in part to the changing requirements across older demographics, and growing/ new family units.

There are also the affordability challenges associated with rising house prices which may be seen as a function of the supply/ demand imbalance, particularly noticeable in the London & South East. Also affecting this is the impact of the mortgage crisis over the past decade culminating in the Mortgage Market Review (MMR) which has contributed heavily to prospective homeowners finding it hard to finance property.

The natural consequence of this is that in spite of people not being able to afford home ownership, they still clearly desire to have a home which again forces them into the rental market. We therefore find ourselves continuing on the journey that has led to 20% of all UK housing being rented and forecasted to be 25% within 5 years, and the inevitable comparison with other parts of Europe - for example France - which has historically been a nation of renters. In fact the UK now has more rented housing than France which is a reversal of the traditional view of the UK being a nation of homeowners. Supporting statistics can be seen from recent CML data with the level of BTL lending exceeding by £4bn the projected numbers for 2014 (finishing at £28bn for the year).This all lends weight to the thinking that the model of housing provision within the UK has fundamentally changed and continues to change.

We must also turn our thoughts to the forthcoming General Election and ask the question of whether or not the issue of home ownership becomes political in nature with different parties promising a resolution to the housing shortage dilemma. Will the government attaining power in May turn their attention to the private rental sector and landlords, or will this be on the radar of the regulator given the impact the BTL sector has on the property market (rule changes across stressed rates for homebuyers and the 4.5% cap on the amount of debt to income being just two examples of how the BOE has applied tools to limit property price inflation).

With the BTL market being cited as fuelling house price appreciation, recognising that the BOE sees property price volatility and bubbles as a key systemic risk to the financial system, and the share of the mortgage market that BTL now represents (circa 16% and growing) it is understandable why this is an area of increasing focus for the government and the Bank of England. The signposts for political and regulatory intervention are lurking.

To ward off such intervention, which has a history of creating unintended consequences, it is incumbent on market participants to focus on sustainability in the sector, prudently taking into account affordability against rising interest rates, along with careful consideration of any appetite to attract more highly geared borrowers by relaxing loan to value limits. With regard to the shift across the UK housing market, we can confidently say that the private rental sector remains a healthy way of providing quality housing in the UK and is something to be embraced and not curtailed. The industry has within its gift the ability to act in a long term sustainable way and send the right signals to all society, government and the BOE – I just hope we have the steel to deliver it.

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.