John Charcol can't claim to have been providing mortgage advice over the whole of the last 60 years but, having been formed in 1974, we believe that John Charcol is the longest established mortgage broker in the UK.
House Price Movements
There was little change in prices from 1952 until the mid 1950s, although prices fell slightly in 1953 and 1954. In Q4 1959 the annual increase reached 5% for the first time and despite some small falls on a quarterly basis there was then an unbroken run of increases in every single 12 month period from Q1 1955 to Q2 1990.
It is quite amazing that that house prices rose in every single 12 month period for as long as 35 years but it does help to demonstrate why home ownership became increasingly popular!
Over the last 60 years the price of the typical house which the index measures has risen by a massive 8,680%! Over the same period the Retail Price Index rose by 2,500%.
Tenure
Over the last 60 years the number of homes has almost doubled to a little over 27 million but at the same time the UK population has only increased by 40% to 62 million.
The proportion of the UK population who are homeowners has risen dramatically from about 30% in 1952 to 66% today. However it peaked in 2003/04 at 71% and because the subsequent steady downward drift started before the credit crunch it was clearly initiated by other factors, although the current restricted mortgage supply is helping to extend the trend.
The private rented sector was about 50% of the market in 1952 but then rapidly declined to around 10% by the early 1990s. This sector has since recovered as a result of the Housing Act, 1988 and the ongoing decline in the social rented sector resulting from the policy of successive governments. It is now around 16% of the market, the same share as the social rented sector has, but the former is increasing as the latter declines.
Thus the current split of housing tenure is two thirds owner occupiers, with the proportion of unencumbered properties steadily increasing as the population ages, and one third rented, with the rental split now 50/50 between the private and social sector.
There are large regional variations in tenure, just as with house prices. In particular owner occupation in London is only 55% and still falling. Not only does London have a much higher proportion of flats than elsewhere in the UK, but also a much more cosmopolitan population.
Factors Influencing Choice of Tenure
I suggest the main reasons for the decline in the proportion of homeowners since 2003/4 have been:
The rapid increase in immigration, with nearly all immigrants having to rent when they initially come to the UK.
A significant increase in the number of young people going to University. This has two relevant impacts - a later start in working life extends the age at which it is viable to consider buying a property and the student debt incurred means that some want to or need to, reduce this or pay it off before they can afford a mortgage.
The current restrictions on mortgage availability, particularly for the typical first-time buyer with only a small deposit, will result in this trend continuing for the next few years, although a large majority of the population still aspire to be homeowners.
Other Key Mortgage Facts
In the 1990s securitisation became an increasing popular and cheap way for major lenders to raise to raise additional funds in the wholesale market, primarily by issuing residential mortgage backed securities. As a result the availability of funds for mortgage lending was no longer restricted by the size of retail deposits.
When the credit crunch hit in 2007 £360bn out of total residential mortgage lending of around £1.25tn was funded through the wholesale markets. This amount has since reduced to £300bn as it became impossible to refinance all the maturing RMBS and lenders were forced to deleverage and/or refinance from retail savings.
As a result gross mortgage lending collapsed in just 2 years from £363bn in 2007 to £143bn in 2009, then £135bn in 2010, with a slight recovery last year to £141bn. Net lending has fallen even more dramatically, from £109bn in 2007 to under £10bn in the past 2 years.
As a result of the massive reduction in lenders' capacity, lending criteria has tightened considerably and many potential first time buyers (and others) now find themselves unable to obtain a mortgage, unless they can tap The Bank of Mum and Dad (or perhaps the bank of Grandma and Grandad).
The only sector of the mortgage market where volumes are recovering strongly, albeit after an even larger percentage reduction than the residential market, is the buy-to-let market. This offers lenders significantly higher returns than the residential market, despite arrears being slightly lower.
