The National Housing Federation (NHF) is warning of a homes ‘crisis’, with a chronic under-supply of homes impacting upon levels of home ownership and rents.
The level of owner occupiers in the UK has fallen over the past few years.
This is the result of high house prices, larger deposit requirements for mortgages and the banks imposing stricter lending criteria as they seek to rebuild their balance sheets following the global financial crisis.
Oxford Economics believes the proportion of home ownership in the UK, which currently stands at 67%, could fall to 63.8% over the next ten years as a result of these factors.
They also predict a 20% increase in rents over the next five years.
What does this housing ‘crisis’ mean for Financial Planning?
Fewer people owning their property and instead renting has important consequences for retirement planning.
Whilst home owners typically pay off their mortgages in full ahead of retirement, those renting are left having to cover this expense in retirement. This translates into a need for a higher level of retirement income in later life, to cover the cost of rent.
If more people rent rather than buy property earlier in life, this suggests that less disposable income will be available in the decade before retirement to fund pensions.
Not owning a property also has an impact on the availability of wealth for care fees planning and future inheritance for children or grandchildren.
A move from home ownership to renting creates important considerations for financial planning. If this does become a persistent cultural shift in the UK, financial plans will need to be reassessed accordingly, with priorities changed to accommodate this change in behaviour.
Photo credit: Flickr/Lars Plougmann
