How changing housing tenure trends could affect UK retirement plans
According to a new report by the Office for National Statistics, if current housing tenure trends persist, in the future, older people are considerably more likely to be living in the private rental sector than current retirees.
Earlier this month, we shared an Advantage blog about how, as the average deposit for first-time buyers hits a record high, demand for private rented properties is likely to continue to rise throughout 2020.
Currently, almost three-quarters of those aged 65 and over own their own homes outright. However, the percentage of younger people who own their own home with a mortgage has decreased since 1993, while the percentage living in privately rented accommodation has increased, overtaking socially rented accommodation in the early 2010s. A quarter of people aged 16 to 64 rent privately at present, up from 1 in 10 in 1993. According to the ONS, declining home-ownership rates at younger ages may have an impact on the type of accommodation older people live in in the future.
They note that: Increases in the private rental sector have been seen for all age groups apart from the very oldest, with the increase particularly pronounced in mid-life. People aged 35 to 44 years were almost three and a half times more likely to be renting in 2017 than in 1993.
In their summary of the ONS’s findings, Today’s Conveyancer states: “As this trend continues, more pressure is placed on pension security. ONS research suggests that homeowners who own their property outright in retirement can currently maintain their living standards on a total pension pot of £260,000.
“However, those renting into retirement will always need to cover their rental obligations and are predicted to need a pension pot of more than £445,000, almost £200,000 more than homeowners.”
What might housing tenure look like for older people in the future?
The ONS notes that currently, those over 65 are predominantly owner occupiers. Owning a home outright by retirement requires taking out a mortgage by mid-life, assuming a consistent income. The traditional mortgage length is 25 years, and although mortgage lenders are today more likely to loan to people at older ages than previously, even with increases in retirement age people are still likely to need to take out a mortgage by their 50s in order to own outright in retirement. But people in mid-life are far less likely to have a mortgage than in the past and far more likely to be renting privately. While only 6% of people aged 65 years and over rent privately today, this is likely to increase in the future if people who are currently in their 30s, 40s and 50s in the private rental sector remain so into older ages.
However, it is important to note that this is not a projection of future housing tenure for older people, only a possible scenario based on the observed changes in tenure at younger ages over time. Many factors affect the type of housing that people live in, including government policy on provision of social housing, help to buy schemes, regulation of the private rental sector, and laws around inheritance. Interest rates, changes in State Pension Age, mortgage lender policies including mortgages for older people and lifetime mortgages, alternative types of home ownership such as shared ownership and shared equity, and changes in house prices relative to income also have the potential to affect housing tenure in the future.
What are the implications of shifting housing tenure trends for developers?
Advantage Sales Manager, James Topping, has previously written about how Build to Rent developments (large scale schemes which are constructed with the specific intention of being rented out) are catering to “generation rent” and may also help to address the under-supply of housing in the UK. However, he noted that such schemes will need to cater to the changing needs of tenants in an era when renting is no longer simply a prelude to getting onto the housing ladder.
The growth of the build-to-rent market is helping to improve amenities for tenants and it’s an area of the housing market which Advantage, the UK’s leading experts in structural defects warranty, will continue to watch with interest as it matures along with its end users.
However, we appreciate that this is just one piece of the jigsaw in terms of providing sufficient high-quality housing in the UK. As well as providing structural warranties for BTR schemes, we also work with Housing Associations (and can offer a 12-year provision for Housing Associations on request).
We expect to see planners, developers, central and local government, architects and social housing specialists (to name but a few) working together to tackle the challenge of providing sufficient social and affordable housing to meet the nation’s needs. We’re also looking forward to seeing more ‘modest masterpieces’ like eco-friendly council housing scheme, Goldsmith Street, which recently won the RIBA Stirling Prize, proving that affordable housing can be extraordinary.
Whether the developers of the future are building for renters, buyers, new home-owners or retirees, we hope that the challenges of building to meet our shifting needs will continue to inspire innovation and excellence, showing how much can be achieved even when working to tight budgets.
People aged 35 to 44 years were almost three and a half times more likely to be renting in 2017 than in 1993.
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