House prices may have been falling, but outright homeowners will still have seen their property wealth grow.
The latest UK house price index, for example, shows that average house prices fell by 1 per cent between January and February, but increased by 5.5 per cent in 12 months.
First-time buyers meanwhile face a ‘new normal’ of higher mortgage rates, and no official replacement for the Help to Buy scheme yet.
Indeed, house builder Persimmon said in a trading statement in April that while interest remains “good” for all of its homes, sales to first-time buyers remain more challenging, reflecting in part stretched affordability.
So are we at risk of the generational divide in home ownership getting wider?
“Unless we have serious intervention in the housing market, we will have two classes of people, homeowners and non-homeowners,” says Richard Campo, founder of mortgage broker Rose Capital Partners.
“You will always get exceptional individuals that will buck the trend; but in general terms, unless you have family assistance and/or inherit a property or assets, home ownership will be out of grasp for the average person.”
Savills’ head of residential research, Lucian Cook, also says that unless there are policy initiatives to increase accessibility to home ownership, a number of factors suggest the generational divide in home ownership and housing wealth will widen in the coming years.
“At one end, older homeowners are living longer and continue to be reluctant to downsize, meaning increasing levels of under-occupation among mortgage-free homeowners,” says Cook.
“This comes at a time when younger households, who in recent years have primarily been concerned with deposit affordability issues, also have to contend with greater mortgage affordability pressures, given higher interest rates.”
How mortgage rates have risen in 2023
Month | Average interest rate on newly drawn mortgages |
March | 4.41% |
February | 4.24% |
January | 3.88% |
Source: Bank of England money and credit data | |
Is building more houses the answer?
Increasing the supply of new homes is often cited as a solution to a lack of affordable housing.
“Increased housing delivery, with a focus on first-time buyer homes, will be part of the solution,” agrees Cook. But he adds that increased supply is needed across a range of tenures.
“Part of the solution is also in making more efficient use of the housing stock we already have; for example, by encouraging downsizing amongst older homeowners, freeing up people’s ability to move up and down the housing ladder.
“That means removing some of the fiscal barriers to downsizing, and providing more aspirational retirement housing to free up the current log jam.”
In England, the overall rate of under-occupation was 39 per cent in 2021-22, with around 9.3mn households living in homes that had at least two spare bedrooms, according to the government’s English Housing Survey.
John Doughty, financial services director at Just Mortgages’ new build division, also says that building more houses should not be the only solution.
“Joining calls from our brokers across the country, we want to see lenders continue their efforts to innovate.
“Most importantly though, we need greater support and awareness for the wealth of schemes still available to borrowers, such as Shared Ownership, First Homes and Deposit Unlock.
“In our business, Shared Ownership in particular has been a real front runner since the closure of Help to Buy, providing an opportunity for both first-time buyers and newly-single individuals to buy their own home with a small deposit. Low deposit schemes such as these, and guarantor-style solutions, have to be a priority in the current climate.”
Indeed, house builders have experienced increased material costs and a shortage of labour, notes Hiten Ganatra, managing director at Visionary Finance. Meanwhile Skipton Building Society has just this week launched a deposit-free mortgage.
House building also declined at its sharpest pace for almost three years in April, according to the S&P Global/CIPS UK Construction PMI, with respondents commenting on delays to new house building projects, constraints on demand from softer market conditions and higher borrowing costs.
Bridging the generational divide
Significant wealth gains for property owners is the flip side of the affordability crisis, a report for policy discussion forum Whitehall Group notes, giving outright homeowners access to the beneficial capital growth that is the cause of reduced affordability of housing.
Although the wider market will be encouraged by resilient house prices, Doughty adds it is not so welcome news to those struggling to make their first move.
After seven consecutive falls, April saw a 0.5 per cent rise in house prices according to Nationwide’s house price index, which the building society’s chief economist Robert Gardner described as “tentative signs of a recovery”.
But Danny Belton, head of lender relationships at Legal & General Mortgage Club, highlights that while long-time homeowners have benefited, many are also trying to help the younger generation by way of the ‘bank of mum and dad’.
Equity release provider Canada Life has estimated that £616bn of housing equity is available to homeowners aged 55 and over.
On the other hand, new first-time buyers are paying nearly £200 more a month on their mortgage than last year, due to a new record average asking price and higher mortgage rates, according to analysis by Rightmove.
As Cook at Savills also notes, how older homeowners choose to deploy their equity could shape the market for the next generation.
Chloe Cheung is a senior features writer at FTAdviser
