MortgagesOct 23 2015

Last time buyers

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Last time buyers

The row over so-called last time buyers (LTBs) has merely served to focus attention on another aspect of the UK’s housing crisis. After the reporting of comments made by FCA Mortgage Director, Lynda Blackwell, newspaper headlines raged at the suggestion that older homeowners should downsize in order to free up potentially millions of properties more suited to the needs of families. The Intermediary Mortgage Lenders Association (Imla), which hosted the conference at which Ms Blackwell spoke, took the trouble to blast one newspaper’s reporting of the issue as having “trivialised and sensationalised” her comments.

Of course, getting LTBs to downsize cannot possibly be the answer to the UK’s housing crisis – the truth is never that simple. However, Legal & General and the CEBR (Centre for Economics and Business Research) have surveyed the sector, asking LTBs what they have and what they want. According to their report the typical LTB is 55 or over, owns their own property, has two or more unoccupied bedrooms and wants to downsize in the future.

Spare bedrooms

Although the report mentions the potential of downsizing by LTBs to free up housing for growing families – LTBs’ spare bedrooms equate to the equivalent of 2.6m family homes – that’s not really the focus. It is about making it easier for older people to consider moving by removing some of the barriers. It also considers the potential advantages to be gained by LTBs who downsize.

It paints a picture of older people living in large unsuitable homes, for which they must pay costly heating, maintenance and tax bills. They are asset-rich; the report calculates that, thanks to years of house price inflation, around 3.3m LTBs live in properties worth £820bn and between them have 7.7m spare bedrooms. It predicts that by 2020, the number of LTBs will rise to 3.8m and they will collectively hold property worth £1.2tn. However, they are also cash poor, with many on incomes of less than £20,000pa.

Almost a third of those surveyed (32 per cent) had already considered moving to a smaller property in the past five years. However, only 7 per cent had actually made the move. When asked why they did not move, survey respondents cited a lack of suitable properties, the cost of suitable properties, and the cost of stamp duty as shown in Chart 1. Other reasons included the stress of moving, attachment to the family home and the desire to leave the property as an inheritance.

In her comments, Ms Blackwell herself had pointed to the issue of housing supply and questioned whether the government should be focusing so much on first time buyers without considering the needs of LTBs. She suggested that thought should be given to encouraging older persons to move, but acknowledged that it would involve building “proper housing for retired people in the right places”.

Barriers

The L&G/CEBR report chimes with this, identifying a lack of suitable properties for LTBs to downsize to as one of the biggest barriers to unlocking this market. The number one priority in its list of 10 steps to unlocking the market is for government to commit to “supporting the expanded provision of age-specific housing to serve the needs of older people”.

Other suggestions in the list include taxation initiatives such as stamp duty relief for those over a certain age and a council tax holiday for new retirement homes. Equity release is included in the last step.

The report mentions the potential economic gains of unlocking high levels of unproductive housing wealth and recommends help for the equity release market.

However, it is difficult to see how homeowners who opt for equity release will make much of a difference to families hoping to see the supply of family sized properties increase. Proponents keep predicting that equity release will take off in a spectacular way, based on current UK demography. But although uptake continues to rise, much of the press and public remain cautious in their outlook. Nevertheless, the row over LTBs has helped to stimulate the debate around both the mortgage and equity release options open to older people, and lenders, advisers and the government appear to be paying attention.

Ultimately this issue isn’t really about releasing properties more suited to the needs of families so much as ensuring that more is done to meet the needs of this sector of the market. Of course, increasing the supply of housing and the availability of affordable properties remain outstanding issues across the UK market.

However, as many have already pointed out, solving the first is one of the keys to solving the second.