UK public turn their backs on home ownership

Okay, okay I know this is not today’s headline, but there must be a real risk, that in the not too distant future, we will see such a headline. Since Margaret Thatcher persuaded millions of people that home ownership was a goal worth aiming for and, lead the way with a massive sale of local authority owned houses, the British public have had a massive appetite for home ownership. But given the last property crash and the current turmoil, will this continue?

The term ‘negative equity’ entered the vocabulary of the masses in the early nineties when, in no small part due to interest rates rising to 15%, property owners watched as the value of their property tumbled. Worst affected, were those that had bought at the top of the market and/or had already over-stretched themselves in order that they could jump on the property ladder. Some people were forced to watch as their mortgage repayments virtually doubled and they had no way to extract themselves, because the property was worth less than what they had paid.

Fast forward another 16 years or so and we are witnessing the same issue of negative equity, albeit for different reasons. Now, whilst interest rates are low, people can’t afford to sell, many others are forced to live in houses that are no longer suitable, perhaps because they have more kids, or less kids! Maybe they need to move because of a job, whatever, these people are trapped, with no simple way out. Now, I am covering an issue that has been dealt with elsewhere, but he is my prediction for the future.

My Prediction for the Future of the Housing Market
I believe that it will be a case of, once bitten twice shy, anyone that has been a ‘victim’ of the housing market twice in less than 2 years and for that matter, others that have witnessed the stress and strain of people suffering, will think twice before buying a home. Why for example would anyone want to see a house increase in value, because, unless you are in a position where you can buy it, live in it and sell it at the right time and move into rented accommodation, there is no real benefit?

The government spout on about “social mobility”, yet having to sell a property and buy another reduces social mobility. In addition, the cost associated, even based on ‘average’ prices is substantial. Most people will find their costs in terms of agents fees, solicitors costs and stamp duty will be far in excess of £10,000. So, if you need to move to a larger or smaller house, you want to move closer to family, move to another job, or even for a better school, you have the major headache of having to sell your home and buy another, something that has been adjudged to be one of the top two most stressful situations a person is likely to have to endure.

In many countries, such as Germany, property ownership is not seen as something people should aspire to, therefore the vast majority rent their family accommodation. This means that it is easy to move house when the need arises and that it is far easier for families to budget their living expenses. Rented homes tend are not subject to the vagaries of ever changing interest rates, nor do they come with the responsibility of high, often unexpected repair bills, at least not for the tenant. Yes, people do not benefit from an increase in property values, but then they do not suffer during downturns either. If someone was to do the maths, even with properties averaging a capital increase of 10% per annum, it is quite possible that people are no better off with property ownership. Because, if you factor in other costs, such a higher monthly repayments, building insurance, repair and maintenance costs, purchase and sale costs, moving house 2 or 3 times in 10 years and any ‘profit’ is likely to be quickly lost.

I believe that we will now see a raft of new, very large property companies forming, who will take on the risks associated with owning property and a substantial rise in people renting. No longer will people be so easily fooled into feeling wealthy if their property values increase, because it will be clear that any value taken out of the property in terms of equity, will be little more than a loan, unless they expect to be in the position of being able to sell the property in the future without having to buy another.

The so called stigma associated with not being a property owner is going to fall away, there will be a whole new perspective on property ownership, people will start to see that it is a potential albatross, that has the potential to restrict mobility and therefore, quality of life. People that rent will be able to move to areas where the best jobs are, where the best schools are or where their family or friends live. Tenants will be able to budget with confidence, knowing that at worst, they will see a small increase in their rental costs, but with a dearth of companies to choose a property to rent from, prices will be kept competitive and choice will be much increased.

Property ownership is a mindset, the last two generations have been brought up with the belief that if you don’t won a property, you have failed, or you haven’t made it, but we must all ask ourselves if this is really the case. I believe people will and this mindset will change. Government must also change their approach, especially if they truly want social mobility to work, they must promote the notion that a happy and settled home is far more important than whether it is owned or rented, they must make clear that people that choose to rent rather than own are not second class citizens and above all, they must offer that same levels of protection and incentives to people renting properties as those owning.

As repossessions rise, there will be a dearth of properties for sale and many of these will be bought up by property speculators at a discount of 25% of their ‘current’ market values. Unlike the previous speculators that wanted to set up a pension scheme using ‘buy to let schemes’, these businesses will be serious about owning properties for their rental incomes, rather than their potential capital gains. They will look at rental yields, much the same as the owners of industrial and commercial properties do. In other words, they will be professional landlords, operating in the home rental market. Admittedly, some of these companies, may be small to start with, but it is quite likely that they many will merge and/or sell to similar organisations and within a short period of time, we will see a number of large, professional home property rental companies. This is where I predict the future will be in 5-10 years from now.

The British love affair with property ownership will, for the most part, die away with this current property crash. They will start to see the real benefits of property rental, in the same way, that many people lease their vehicles for 3 years, rather than owning them. They will start to realise that quality of life is measured by happiness, living in the right type of home that meets their current needs and not to determine their place on the social scale by the worth of their house or the equity locked away within it. If my prediction comes true, then I believe it will be no bad thing, because quality of life, is far more important than quantity.