Confidence is a fragile thing. One sharp knock and it can take years to rebuild. The housing market is no stranger to this effect, with the consumer view of the market paramount to its success. The sustained stability of the economy in the last 10 years has certainly given the public something to be positive about, as house prices have grown at an unforeseeably good rate.
This positive attitude to the housing market is backed by research by the Council of Mortgage Lenders, which found the popularity for owner-occupation has returned to near-record levels following a prolonged dip that started after the recession in the early 1990s.
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The survey found 84 per cent of adults now hope to be home owners in 10 years’ time and short-term aspirations, particularly of the under-25s, have recovered strongly. Over the past five years, the level of under-25s hoping to get on the property ladder in the next two years has risen from around 40 per cent to 50 per cent.
However, this contrasts with actual rates of homeownership over the same period, which fell from 24 to 18 per cent, fuelling the debate of whether higher rates of private renting by younger age groups reflect lifestyle preferences or affordability pressures.
Affordability and lifestyle
Nick Baxter, managing director of Mortgage Promotions, feels the main reason behind young people’s aspirations is that they don’t remember a time of negative equity and face ever-increasing house prices. He says: “We’re now seeing a situation where people can’t even earn in a year as much as house prices go up by, let alone save that amount. People feel they have to get on the ladder now. I think it is affordability rather than lifestyle that is causing the gap between actual rates and aspirations.”
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Baxter points out one of the fundamental differences between the early 1990s and now is that interest rates are no longer subject to political posturing and are under the remit of the Bank of England. “Rates in May 1993 were at 15.4 per cent and we’re at a third of what we were then. We’ll probably never see those big swings again. In those days rates were reduced when they should have been increased and the economy got out of balance. The Bank of England is not interested in political favour.”
Colin Snowdon, chief executive of Freedom Lending, believes that changing lifestyles play a major part in people’s aspirations. He says: “Young professionals like the city lifestyle and it’s changed the whole idea of buying a home as quickly as possible. People don’t get married as young and are coming to buy at a later age, so it’s not just affordability – though that is a strong element.
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“Buy-to-let is partly driven by affordability, but some people don’t want to get on the property ladder. Aiming to buy is not inconsistent with living in rented property for quite a long time. There will come a time in someone’s life when it makes sense to get on the property ladder.”
Status symbol
Andy Frankish, managing director of Mortgage Talk, says that owning a property is very much a status symbol and a sign of individual freedom. He explains: “Peoples’ approach to money is different to what it was even five years ago, and they have the ability to borrow more. That’s not a bad thing, as they have an asset for life.
“People feel they need to have a property, as that’s what they are told. It will be interesting to see how many of that 50 per cent of under-25s realise their dream and are on the ladder in two years’ time. I imagine there will still be a lot of them renting at 27. But from an industry point of view, it’s good to hear that people have that aspiration and want to be a property owner.
“We’re coming off the back of 10 years of substantial increases of property value. Had we had steady growth of 4 or 5 per cent per year rather than the 30 per cent in some areas, people wouldn’t find it as attractive.”
Sally Lauder, senior press manager at Alliance & Leicester, says: “It is encouraging to hear that people feel owning their own home is an obtainable ambition. This is great news for mortgage intermediaries, lenders and product providers alike as they help more people make a dream a reality. It’s also good to see people are building their aspirations into their long-term planning rather than rushing into anything because home ownership is a lifestyle as well as a financial commitment.”
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With such positive consumer momentum behind the housing market, the industry can look forward to sustained growth. Despite the recent uncertainty over interest rates in the last few months, with several Base Rate hikes causing a certain amount of ‘rate shock’, record lending continues to be reported by the major industry organisations.
While 2007 may not see the heady house price increases of previous years, this is perhaps a god-send for helping aspiring home owners finally achieve their dream and build the market further.
