The Smith Institute has raised important issues for the future of the private rental sector, says Bob Young, managing director of Capital Home Loans
Predictions about what the future might bring are often fraught with danger however that doesn’t stop us in financial services. Indeed, in our sector we almost have an industry dedicated to keeping an eye on the crystal ball, in fact, everything we do often seems based on, often, spectacular hyperbole of what the future might bring.
Many change their predictions regularly, jumping on a house price bandwagon here and an interest rate industry view there others choose to stick with their predictions of ongoing catastrophes in the hope that, at some point in future, they have to be right. These are the ‘broken clock’ operators who work on the assumption that, while they might be wrong for 99% of the time, eventual the market will hit the correct time and they can unjustifiably pronounce that they had been right all along, and why didn’t anyone listen to them?
It’s true to say that a lot of the predictions that get bandied around can be taken with a large pinch of salt, however, other more serious studies and analysis about what the years ahead may bring, can offer a real foundation to work from. After all, we have to consider future events, twists and turns and plan and prepare for them, otherwise we are likely to be in an unprepared state if a new landscape does happen to emerge as predicted.
In terms of the housing and mortgage market in the UK, we appear to be at something of a jump-off point. Given what has happened in the last four years, the funding crisis, the recession and everything that has come with it, we have seen a steady fall in the numbers of those individuals who can secure finance and therefore purchase a property. For example, the days when those with significant arrears/CCJs, etc were still able to get a mortgage and fund a property purchase appear to be over (at least for now).
All this means that we are likely to see far fewer homeowners than in previous periods and there are clearly fundamental impacts for, amongst others, the buy-to-let sector, the government and society in general, because of this. Last month the political think tank, The Smith Institute – founded in memory of the former Labour leader, John Smith – published a study which predicted a number of fundamental changes to what has (over the past 50 years) been a very home-ownership dominated society up until now.
It predicts that the number of people who own their own homes is likely to fall further over the course of the next 14 years or so. By 2025 it suggests that there will be two million less people owning their homes. At present there is owner-occupation of 67.4% in the UK, and if this was maintained it would correspond to 17.4 million households however if the ongoing trend for falls in homeownership was to continue – which seems likely – then this would result in a fall to 60%, leaving 15.5 million households in owner-occupation.
To my mind, this illustrates even more prominently the moves we are making as a society, away from an owner-occupation dominated housing market to one where there are many more people renting, for a variety of reasons. The fact is that those two million households will not simply disappear they will continue to have housing needs however they will have to be serviced predominantly by the private rental sector.
Now, as a strong supporter of the private rental sector this obviously means a positive outlook for rental property demand and the overall buy-to-let market. However, there are other issues to consider, perhaps most notably how the private rental sector meets this demand, particularly when the same finance-related problems that prospective owner-occupiers are facing, exist in much the same form for prospective landlords. Mortgage finance is tight regardless of how you intend to use it.
Therefore, this issue appears to need some considerable joined-up thinking from all stakeholders not least the government which will face some significant falls in property-related tax revenues, for example stamp duty, if The Smith Institute is correct. In a very true sense, there needs to be a balance struck between allowing those individuals who want and can afford to buy their own properties to be able to do so, whilst at the same time accepting that many more individuals will need to rent whilst they save for deposits, or may actually make a positive choice to rent rather than purchase.
However, greater numbers of rental property will be required to meet this growing demand and, certainly at present, we are nowhere near a position which offers enough finance-raising opportunities for existing and potential landlords. Encouragement to purchase should not just be focused on the homeownership side it should also be spread across the private rental sector because if the predictions are right, many more people will be choosing to rent as each year passes.
The big question will be whether we have enough funding and property available to fulfil that demand.