Government appears to be giving up on older mortgage holders

 Research released last month by Hargreaves Lansdown shows that renting ruins financial resilience with just 18% of renters on track for a “moderate” retirement, compared to 55% of mortgage holders and 51% of those who own their home outright. This echoes earlier findings from the Pensions Policy Institute (PPI) which produced a first-of-its-kind forecast simulation in December exploring the risks of falling home ownership, an increase in private renting, and the shrinking social housing sector.

According to the PPI’s modelling, if current home ownership trends among today’s 45- to 64-year-olds continue and other factors remain the same, the proportion of households that own their home in retirement will fall from 78% to 63% by 2041. At the same time, the proportion of retired households living in the private rental sector will rise from 6% to 17%.

PPI research associate Anna Brain said the study has two critical implications, the first being the “concerning scale” of the risks to future pensioners. She added that many of these have failed to feature in government policy debate.

READ MORE: Scotland houses: Prices forecast to rise, rents surge seen

“Most of these people look unlikely to accumulate the level of savings they need to cover both future rent and living expenses, and the scenario suggests that up to 400,000 more households could become dependent upon housing benefit to afford the cost of their home,” Ms Brain said.

“Second, results reveal that a series of increasingly outdated assumptions around how future pensioners work, live and save for retirement, is putting strain on the overall UK retirement income model, and on the very fabric of the UK pension system. The expectation that people will reach retirement with high rates of home ownership, supported by an adequate supply of social housing, is one of them.”

The downward spiral in affordability for prospective buyers of all ages is well understood, with a desperate lack in the delivery of new and efficient homes of all tenures driving prices into realms that many can never aspire to. This has been compounded by the widely-discussed impact of higher interest rates, along with a surge in rental prices that has severely hampered individuals’ ability to save up for a mortgage deposit.

Rettie & Co has forecast that Scottish house prices will rise by about 1.5% this year, while the private rental sector faces further double-digit increases in average rents on new listings which not protected by the Scottish Government’s rent cap. Introduced as an emergency measure in September 2022, the rent cap is currently due to come to an end in April.

READ MORE: Scots hit with £2500-a-year average mortgage bills rise bombshell

Meanwhile, data released earlier this month by banking trade association UK Finance found that on the measure of mortgage payments as a proportion of income, first-time borrowers would need to pay off their home loans over a whopping span of 72 years to be able to afford the same mortgages on offer just two years ago. This is far beyond even the most generous of lender underwriting criteria, with the average mortgage term for first-time buyers now standing at 32 years.

It’s therefore no surprise that a survey last week from real estate investment manager Monta Capital found that 85% of tenants in the UK are renting through necessity because they can’t afford to buy their own home.

In common with all tenants, retirement renters live at the whims of their landlord with rent rises always a looming threat. But while younger tenants can at least hope for better pay to cushion such blows – and possibly get an eventual toehold on the property ladder – older renters are unlikely to have the same flexibility.

Rising house prices which force people to wait longer to buy their own home are also fuelling a substantial increase in the number of first-time buyers over the age of 50, part of the wider trend in which those under the age of 30 are declining while those aged 40 and over are steadily increasing.

READ MORE: Mortgages: Surge in first-time buyers relying on mum and dad

According to mortgage specialist Tembo, which recently analysed latest data from the Financial Conduct Authority, there were 12,000 first-time buyers over the age of 50 in 2022. Its projections suggest that number will rise to 19,000, or 5% of all new homeowners, by 2030.

Older buyers have historically struggled to get a mortgage because they likely have less time to repay the loan before they stop working and experience a drop in income. Having raised its age limit to 75 only last summer, Halifax announced last week that it is imposing a new 70-year limit on the terms of its home loans for some borrowers.

Amid the volatility and structural shifts currently taking place in the market, it feels as if government is giving up on the challenge. There was a distinct lack of support from Chancellor Jeremy Hunt’s Spring Budget earlier this month, with not a single mention of the word “mortgage” in either his speech or the main Budget document.

It’s a conundrum for the Conservatives who have eased back on commitments to build new housing which in turn would help keep prices in check. They need to boost home ownership to foster a new generation of Tories, but similarly any rival successors will have to get to grips with a new generation of older voters facing increasing insecurity.

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