Over half of UK homes will be rented by 2032 for the first time in sixty years if current housing trends go unchecked, according to a new report by the Intermediary Mortgage Lenders Association (IMLA) which assesses the growth of the buy to let (BTL) market and its impact on first time buyers.
The report found that since 2007 the private rented sector has grown from 14% to 18% of households while owner-occupation has dropped from 68% to 64% and social renting has also fallen.
This has happened with BTL mortgages financing just 420,000 (32%) of the additional 1.31m houses in the private rented sector since 2007, with the remainder made up of cash or commercially-funded purchases and properties rented out by their existing owners.
The IMLA report identified multiple trends driving the rise of private renting by creating extra demand, including: the fall in social housing; growing obstacles to homeownership; changes in the employment landscape; greater numbers of students; high levels of immigration; later marriage and rising separation rates.
It emphasises that failing to increase UK housing supply in line with population and household growth is the major cause of first-time buyer frustrations and the heightened sense of competition for buying homes. Low interest rates and quantitative easing have also advantaged landlords, with financial regulations such as limits on interest-only mortgages adding to the obstacles facing would-be homeowners.
Demographic projections point to rapidly rising housing demand, with the UK population expected to reach 67.8m by 2020 and 75.3m by 2035.
IMLA said that if current trends continue without a major policy or economic shift to address the shortage of new homes, the majority of UK households will be renting in the private and social sectors by 2032 for the first time since the early 1970s – with homeownership increasingly the preserve of the old.
The continuing fall in owner-occupation and decline of social renting would also mean more than a third of households renting privately within two decades – twice as many as today.
Homeownership is already lowest among younger generations and this effect will gradually move up the age brackets, as more people struggle to buy in their 30s and beyond. Between 1991 and 2012/13, homeownership among 16-24 year olds in England dropped from 36% to 11% while among 25-34s it fell from 67% to 40%.
Peter Williams, executive director for IMLA, said: “There are many misunderstandings clouding the growth of buy-to-let, including its impact on first time buyers. This report is a fresh look at how and why the private rental sector has grown. It asks important questions about our current direction of travel and the failure to build enough homes to support the rising population.
“Growth of the private rented sector has been from a historically low base and has been fuelled by strong underlying demand. If current trends continue then demand for private rented property is likely to drive further expansion and increase the burden on our already-overstretched housing stock, at a time when first time buyers are also feeling the pressure of new mortgage market regulations.
“Pressure is likely to grow for planning restrictions to be relaxed to support a large increase in new building and address the chronic failure to keep up with housing demand. The inescapable conclusion is that we need a proper joined-up strategy to adequately serve owner-occupiers, tenants and landlords, and put an end to key forces pulling in opposite directions.”