There aren’t many things that everyone in the country can agree on. We’re not likely to win the Euro 2012 championship with Fabio Capello still in charge of the team, perhaps. Or possibly that Pippa Middleton has a stunning, er, figure. And, of course, that owning your own house is what everyone aspires to – and the bigger the house, and the smaller the mortgage, the better. But now even that last item might have to be scratched from the list. After nearly half a century, during which the British increasingly owned their own houses, and when home ownership has been held up as the summit of social aspiration, fewer of us every year now own the place we live in. This has some far-reaching consequences.
The decline in home ownership is already well-established. The peak in owner-occupation was reached all the way back in 2003, when it hit 70.9% of English households. Since then, it has been going down at a steady rate of about 0.5% a year, which has brought it down to 67.5% for 2010, the latest date for which numbers are available. Owner occupation is now back to the same levels it was in 1991, so in effect there has been no growth for 20 years. Don’t expect that to change soon – if anything, the trend is likely to accelerate.
For starters, government subsidies have been steadily withdrawn. You used to get tax relief on mortgage interest payments, so that in effect the government paid part of your mortgage for you. That was steadily withdrawn, and finally abolished, about ten years ago. These days, steadily rising council taxes and stamp duties mean that far from subsidising home ownership, the government now actively penalises it.
Next, houses are still very expensive. The long-term figures suggest the average house should be worth 3.5 times the average salary. Prices are still way abovethat. One reason why people aren’t buying houses any more is that they are too expensive – and until that starts to change, owner occupation rates won’t rise.
Thirdly, and most importantly, the days of easy debt are well and truly over. The housing boom was largely fuelled by borrowed money, but that too is now much harder to come by. In Britain, the average deposit on a first house is £26,000, a big sum when there are student debts to pay, and real wages are falling. Pushing owner-occupation levels up to 70%-plus was only really possible when there were 125% self-certification mortgages available – in other words, by lending money to people who couldn’t really afford it. The banks are not going to be doing that again for a long time – and that means that ownership will be restricted to a narrower range of people.
Take those three factors together and it is hardly surprising that owning your own house is less popular than it used to be. Where the numbers will settle exactly, we don’t know yet. But it is not going to be anywhere near the levels we were once used to. So what does that mean for financial services? There are three big implications. First, mortgage lending is not going to be the dominant force it once was. Mortgages have been a huge industry in Britain, employing tens of thousands of brokers, advisers and solicitors. It has been the major revenue source for the high-street banks and the building societies. But lower house ownership means fewer new mortgages. Back in 2001, 41% of households had a mortgage. That is already down to 35%, and on current trends it is going to keep on falling. There will be less business for everyone in the industry. A lot of jobs are going to disappear, and profits with them.
Second, lending is going to be a lot harder. Banks won’t be able to dish out money against people’s houses the way they used to. Fewer people will own a house, and those who do will probably be higher up the income scale. So they won’t need credit the way younger, cash-strapped people do. A lot of the personal lending industry is also going to vanish. That which remains will have to find new and smarter ways of judging whether people are a good credit risk or not – because they won’t simply be able to take a charge over people’s houses and threaten to take them away it if they don’t pay.
Lastly, and perhaps most importantly, renting will be a huge growth industry. Just because home ownership is in decline doesn’t mean people are going to start sleeping rough. They’ll still be living in flats and houses – it is just that other people will own them, and they’ll be paying rent instead of mortgages. There are already more people in private rented property than local authority or social housing. The buy-to-let sector, which took such a knock during the credit crunch, is going to bounce back strongly. New private rental corporations, owning huge numbers of properties, will emerge. The banks will need to start lending to them. And many of their brokers will need to turn themselves into letting agents instead.
There will be opportunities, just as there are with any big social change. However, traditional building societies will be hit hard: their entire business was about helping ordinary people onto the property ladder. And the whole financial services industry is going to be knocked – unless it finds a way to re-invent itself fast.