Almost 60% of 20- to 39-year-olds in England will rent their homes by 2025, while just 26% will have got on the housing ladder, research shows.
“Generation rent” will find it increasingly difficult to buy and are likely to be older than previous generations before they can afford their own home, according to the report by PwC, which builds on analysis of the housing market published in the summer. High prices and deposits as well as rising interest rates will put young adults at risk of being locked out of property ownership.
The biggest shift in tenures is expected to be among 25- to 34-year-olds, PwC said, with two-thirds of households living in private rented accommodation by 2025, compared with 48% in 2013. A third of those aged between 35 and 44 will be renting in a decade’s time, compared with 24% in 2013, and among 45- to 54-year olds the figure will have risen from 15% to 21%.
Across the 20-39 age group, only 26% will own their home by 2025, down from 38% in 2013.
Older generations, who have benefited from huge increases in the value of the homes they own, will largely be insulated from these trends, PwC said. Three-quarters of over-55s own the home they live in now and this will still be the case in 2025.
Richard Snook, senior economist at PwC, said the research set out the scale of the challenge faced by young people trying to get on the housing ladder. He said the continual advance of house prices, which have far outstripped growth in earnings, was fundamentally changing the way people live, and he said policy needed to adapt to the change in tenures.
“This could include encouraging a better quality of private rented accommodation including longer tenure periods, and more rental properties designed for families,” Snook said. “Demand for housing in the UK has outstripped supply for more than two decades. Changing the outlook for generation rent will require us to build more houses than needed just to match population growth in order to make up the past shortfall between housing supply and growth in demand.”
Growing demand from property investors has led to a price war among lenders who are offering the lowest buy-to-let mortgage rates on record to try to win custom.
Moneyfacts, the financial information firm, said the average rate on a two-year fixed-rate buy-to-let loan had fallen to 3.26%, compared with 3.63% a year ago and 5.23% in 2010, while the cost of a five-year fix has dropped to 4.06% from 4.33% in November 2014 and 6.12% five years ago.
The number of fee-free deals for landlords has rocketed, and at 130 is double the figure in November 2014. Charlotte Nelson, of Moneyfacts, said: “The finding that the average two-year fixed rate has fallen by 0.37% in just one year is particularly good news for older borrowers who are looking to access their pension pots to invest in bricks and mortar.”
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