The conversation between lenders and intermediaries over the past year has been dominated by one subject, product transfers and associated proc fees.
Over the past three months we have seen a sudden change in position and now nine of the top 10 lenders are either paying for product transfers or have made a firm commitment to do so. We should welcome this change of mind and accept it at face value.
I believe attention will now turn to the wider issue of home ownership. The English Housing Survey revealed that 63% of people owned their own home in 2015-16. That’s quite a bit lower than it was 10 years ago (70%). Indeed, it’s on a par with the levels we saw in the mid-1980s.
More strikingly, the proportion of people who own their property with a mortgage now stands at 29%. Twenty years ago, that proportion was 43%, 10 years ago, it was 40%. This is not good news for our industry.
What’s going on?
Demographics are part of the answer. Older people are more likely to own their home outright, and the population is ageing, so it stands to reason that we would see this trend. As the report notes, large numbers of baby boomers are reaching retirement age and paying off their mortgages.
Affordability is also a factor. The number of first-time buyers rose in 2015-16, to a seven-year high of 654,000, but high house prices make it difficult for younger people to get a foot on the housing ladder. As a result, 46% of those aged 25-34 are living in the private rented sector, up from 24% ten years ago. Over the same period, the proportion of 25-34 year olds buying a home with a mortgage has fallen from 53% to 35%.
Often, the lower for longer interest rate environment is presented as a bad thing for older people, who tend to be net savers, and a good thing for young people, who tend to be net borrowers. This data provide a different perspective. Low interest rates aren’t much help if you’re still trying to get on the housing ladder, for two reasons.
First, they make it harder to save up a deposit. Second, they help to keep asset prices high – including house prices. I’m not making a judgement call here. I’m simply re-iterating the point – made by lots of other people, including the Bank of England that ultra-low interest rates have distributional consequences.
The good news is that 59% of private renters say they expect to buy a property at some point in the future. The challenge is for lenders and others to meet this demand if we are to have a sustainable, scale market for mortgages.