Crisis looms on housing market

House falling down crack

The housing market is in 'crisis' as more people are 'locked out' of buying property, according to the National Housing Federation (NHF).

Home ownership in England will slump to 63.8% over the next 10 years – the lowest level since the mid 1980s – as more people are forced to rent due to huge deposits, strict lending criteria and soaring house prices.

The trade body warns that the English housing market faces an 'unprecedented crisis' over the next decade, primarily fuelled by a 'chronic under-supply of homes'.

According to Oxford Economics, rents in the private sector will increase by 19.8% over the next five years. Fuelled by high demand and a shortage of homes, the average monthly rent will increase from £486 to £582 in 2016, meaning tenants will be paying an extra £1,152 more each year.

Conditions for tenants continue to deteriorate. Figures from Rightmove report a 'widening gulf' between supply and demand in terms of renting.

The rising cost of living, low wage growth and the disparity between rental supply and demand is inflating the 'rental bubble', according to the property website. In addition, Rightmove found one in six tenants expect rents to rise by more than 10% in a year's time.

More pain to come

Miles Shipside, director of Rightmove, comments that "more pain is to come" for tenants. "Their gloomy prediction about their own deteriorating financial fate is backed up by the widening gap between search activity and available rental supply. Their pain is a landlord's gain with a shortage of rental accommodation and continuing high demand further boosting landlords' rental returns," he says.

Despite soaring numbers of renters, the cost of buying a home for a first-time buyer is actually £100 less a month than renting on average, according to Halifax.

The lender found that the average monthly cost of buying a two-bedroom property in the UK was £567, whereas typical rent paid on the same property equaled £677. However, the lender does admit that despite the growing affordability of a mortgage, conditions are "challenging".

Suren Thiru, housing economist at Halifax, says: "Difficulties in raising a deposit and the current economic uncertainty are likely to mean that the number of prospective first-time buyers entering the market will remain relatively subdued in the near term."

Read our in-depth guide for first-time home buyers

That said, the number of mortgage approvals increased by 1.5% in July to 49,239, a 14-month high, according to Bank of England figures.

Chris Gardner, director of mortgage brokers Obligo, says that despite the rise in mortgage approvals, the market is still "stagnant". "The market is now at a critical tipping point. With average rents creeping up by as much as 1% a month, the economics of the housing market are changing," he says.

He adds that the rise of "generation rent" could be "unstoppable" if the housing market continues to depreciate.

This article was written for Money Observer

Your Comments

I have been trying to sell my deceased father's purpose built flat for some months. It is an ideal starter home for a young couple, being within walking range of the station and shops.
There has been a lot of interest however people have had extreme difficulty getting a mortgage. This will obviously continue until banks and building societies are more willing to give mortgages rather than invest in gilts.

What a crazy country, wide open door for mass immigrants, you may call them ECONOMIC MIGRANTS and benefit for the country. But have you ever realise most of these ECONOMIC MIGRANTS hardly go back to their home country after their visa has expired, worst of all they have bought most of their family here and settle down, and they go on having children here and claim benefits. Of cause they all need a roof under their head; some of them can even afford to buy more than one property and renting out their second property without paying tax. Guest what; this has push up the house price.
If this government want to bring the house price down, they should build more affordable homes, they also need to tax those people who own more than one property (whether holiday homes or renting properties), of cause they won’t bring in this rule, as most of the MP themselves has more than one property.