Mortgage famine creates rental boom

Published 11th Nov 2011

• UK rents expected to rise 20% over next five years
• CBI calls for more support for first-time buyers

Rents across Britain will rise by more than 20% over the next five years from today's already record levels, estate agency Savills has forecast, as the mortgage famine forces more and more families into the private rented sector.

In a dramatic reversal of the era of mass home ownership, Savills said that by 2016 one in five households will be renting from private landlords, compared with 15% today and 7.5% in the late 1980s. It blamed the lack of mortgage availability for the increase, with steep deposits making it virtually impossible for people to put a foot on the property ladder.

The worsening economic outlook also prompted researchers at Savills to halve their forecast for house price growth. They said next year prices would dip nationally by 2%, and only recover 6% by 2016. After taking inflation into account, house prices are likely to end 2016 at the same real level they were in 2002. In the north-east, house prices are likely to continue to fall until at least 2015, and in real terms be lower than they were two decades earlier.

But stagnating house prices will not help first-time buyers. Yolande Barnes, director of Savills Residential Research, said: "There is a fundamental change going on in the DNA of the housing market."

Savills said that between 1999 and 2008, 127,000 new households a year went into owner-occupation. But since 2009, only 40,000 households have been able to start on the property ladder, with a net 72,000 quitting owner-occupation and moving into the rental market instead.

"We're finding that even if you have bought a home in the last five to ten years, you haven't got enough money or equity to trade up, so we're seeing the cycle go into reverse. We are also seeing increasing amounts of let-to-rent, where people are unable to sell, so they rent out their home then rent another that is more suitable for their needs," said Barnes.

On Thursday the Council of Mortgage Lenders said that mortgages made available to landlords are at their highest level since 2008, increasing by 16% in the third quarter of 2011 to £3.8bn.

Paragon, a lender that accounts for one in 10 buy-to-let mortgages in Britain, added that there was a 39% increase in the volume of landlord loans over the past year, driven by record tenant demand.

"Buy to let is beginning to boom once again. A growing number of amateur landlords are keen to tap into soaring rents," said Mark Posniak of Dragonfly Property Finance, a buy-to-let specialist.

Spiralling rents are not just focused on London and the south-east. Estate agents Countrywide said this week that an average five tenants are now competing for every available rental property, rising to more than seven in the West Midlands.

Rents rose in all regions of England and Wales, with most areas reporting record highs, said agents Your Move last month.

Pressure is intensifying on the government to step in to help home buyers. On Friday the CBI will call for new measures to kickstart home ownership, such as an indemnity scheme to protect lenders if buyers fall behind on mortgage payments. In a report entitled Unfreezing the Housing Market, the CBI director general, John Cridland, will say: "We have to do more to give our young people hope in the future. Owning a home has been a natural aspiration for generations of Britons since the 1950s, and should not become the preserve of a lucky few."

Campaigners at pressure group Priced Out warned of the political consequences of a generation left out of the housing market. Spokesman Matt Griffiths said: "The rise in renting is overwhelmingly in younger households but also among couples and families in their 30s and 40s. Issues like security of tenure and sharply rising prices matter a great deal for young families, but the emphasis of government is on the rights of landlords and the free movement of investment capital. [Housing minister] Grant Shapps is increasingly out of touch on this issue."

London mayoral candidate Ken Livingstone said worries over housing are the top issue when he holds public meetings. "Many Londoners renting private accommodation are falling victim to rogue landlords, rip-off agencies and accommodation which just isn't up to scratch … There are big questions as to how politically sustainable it is for UK property to become a global asset class for the super wealthy, whilst ordinary households bear the resulting brunt of growing pressure on their living costs."

But Savills said that it expects house prices in the capital to continue to escalate even while the rest of the country is flat. It forecasts "mainstream" house prices to rise by 19% in London over the next five years, and "prime" properties to grow by 22%.

"London is almost an independent city state operating within a global context rather than in a national context," said Barnes.

Source: ' 'Guardian' '

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