A report by PricewaterhouseCoopers has thrown a very interesting light on the UK buy to let market amid suggestions that half of those aged between 20 and 39 will be renting property by 2025. Over the same period the report forecasts that around 25% of the UK public will be renting their home, creating what could be described as a vicious circle. So why are experts forecasting such a shift towards the rental market?
Property prices and wage growth
There are a number of factors coming into play which will see the cost of an average UK property increase to around £360,000 by 2025. Even though average annual property price growth will remain in single digits, forecast at around 5%, this is likely to be constantly in excess of wage growth expected to come in at around 3% to 4%. So while there is a relatively small difference between the two figures it will lead to an ever expanding gap between the cost of property and affordability.
In many ways we have also become too accustomed to historically low mortgage rates which are likely to move higher in the short to medium term. This will increase the cost of borrowing creating yet another factor pushing more and more people towards the rental market.
Buy to let will prosper
While politicians have attempted to take the steam out of the UK buy to let market there are many factors coming into play which will push demand higher and higher in the short, medium and longer term. We have the rental situation (highlighted above), relatively low cost of borrowing, minimal savings account income together with a prosperous long-term UK property market.
Against this background it is difficult to see how any action taken by the authorities can significantly reduce the gap between affordable property and actual average property prices. Something does need to be done to bring average UK house prices and affordability back into line but this could well be a long-term challenge.
Home ownership numbers
This report by PricewaterhouseCoopers suggests that home ownership numbers in the UK will fall from a peak of 71% at the turn-of-the-century to around 60% by 2025. Indeed it looks as though there could be an additional 1.8 million more households renting by 2025 taking the UK total to a staggering 7.2 million households.
While we will likely see a reduction in overall home ownership numbers across the UK it is expected that the situation will be very different amongst older households. Many of the older generation who acquired property some years ago will likely be tempted to cash in on ever-increasing prices and possibly downsize. However, outright home ownership amongst the older generation is still expected to rise from 30% to 34% by 2025.
We have seen some major changes in the UK property market over the last 40 years resulting in a change from the household ownership model to a rental situation. Who would have guessed this in the aftermath of the 1980s council house sell-off by the Conservative government – a move which was welcomed by many back in the day!