Will you be mortgage-free?
If we continue along the same home ownership path signposted in the 2011 census, this year will see more of us own our homes outright than have mortgages.
Currently about eight million people own their homes without a mortgage, which represents £2,000 billion worth of property and 38% of the total value of the housing market. The top three regions with the highest proportion of owners aged 60 and above, who are also most likely to have paid off their mortgage, according to the Office for National Statistics, are East Dorset, East Devon and North Norfolk.
Unsurprisingly, the three areas with the lowest rate of outright owners are all in London - Hackney, Tower Hamlets and Southwark.
Many of those mortgage-free homeowners will be people who took out loans on their properties in the 1970s and 1980s and are now reaping the big financial rewards of decades of house price growth.
The MIKIs and the SKI-ers
James Wyatt, partner at Barton Wyatt estate agency in Virginia Water, Surrey, sees plenty of them – and they fall into different categories.
There are the MIKIs (made it, keep it), "terribly sensible people who have done well but are determined to pass it down"; the GUTS (gear up to spend), who make the most of 'cheap' money to buy holiday homes and boats; the WIFS (wealth is for spending), usually downsizers who intend to enjoy their retirement; and their likeminded SKI-ers (spending the kids' inheritance), who will also spend lavishly but may also borrow "and leave the mess for the kids to sort out after they conk out", says Wyatt.
To have that choice is an enviable privilege for many. While inconceivable for younger generations, many people are paying down their mortgage debt rather than leave their savings to gather dust in a bank account. "Leaving money in savings is terrible at the moment with everyone's real personal inflation 5%-plus," says Nick Hopkinson, director of property company PPR Estates.
Part of the reason for more people owning outright is purely our ageing population who have owned homes through several generations. As Kate Faulkner, director of PropertyChecklists.co.uk, points out: "We have now had several home-owning generations, so people are inheriting homes outright, helping to pay off their debts or their mortgage early" – all contributing to the high number of debt-free homeowners.
"Cashed-up owners", as Ben Podesta from Domus Nova estate agency describes them "create two opportunities for the sales market. One, they downsize, which means selling and buying – helping the movement of properties. Two, they give money to their offspring, which then have no need for mortgage or are able to buy a bigger first property."
The famous 'Bank of Mum and Dad' phenomenon is inextricably linked to the trend for increasing numbers of older, mortgage-free home-owners. And it's partly why property prices continued to rise since 2000, as money from equity earned allows younger people to afford the higher deposits required. Jonathan Harris, director of mortgage broker Anderson Harris, says young people can buy without having a significant impact on the demand for more expensive higher loan-to-value mortgages, he thinks.
But a property market in which more than half of owners are mortgage-free is not without its downsides. The main problem, says Richard Donnell, director of Hometrack, is liquidity of housing.
"People are living longer and staying put, which is reinforced by a lack of homes to trade down to. Down-traders are competing with first-time buyers and investors coming the other way with debt to fund a purchase," says Donnell, whose research finds that the average long-term time in a property was 15 years but has now risen to 25 years. The rising number of buy-to-let investors buying secondhand stock adds to the problem, given the typical shelf-life for such an investment is 15 to 20 years.
Risk and reward: Five tips for 100% homeowners
Property Checklists' Kate Faulkner advises what mortgage-free owners need to bear in mind…
1. You still need to have building insurance – as before your lender would have reminded you.
2. Buying or selling with cash doesn't mean you shouldn't use a legal company for the transfer of ownership.
3. You should still have searches done on a property you buy.
4. If the property price doesn't go up with inflation, you may end up losing money.
5. If you own outright, re-mortgaging to buy more property can increase your tax bill substantially. And if you sell up and invest in several homes, they may not give as good a return as the property you owned which can grow in value tax-free.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.