More householders will have to rent, says mortgage body

Increasing numbers of Britons are likely to be forced to rent in future as a shortage of housing supply pushes home ownership out of many people's reach, research showed today.

The Council of Mortgage Lenders said the proportion of people who are homeowners is likely to fall in the coming years, while increasing numbers of people will instead be tenants, mainly renting in the private sector.

It said some of the shift would reflect changing consumer preferences, but the rising number of renters would also be due to affordability pressures, which have been exacerbated by the credit crunch.

The group warned that a "chronic lack of housing supply" of all types looks set to persist, as new-build levels fail to keep pace with the number of new households being formed.

It said a combination of private sector funding constraints and public sector spending cutbacks is likely to produce a significant shortfall in both housing supply and housing finance.

It is estimated that between 1999 and 2009 the number of new homes built each year ranged from 130,000 to 170,000.

But it is thought 238,000 to 290,000 new homes are needed each year just to keep pace with rising demand.

The situation looks set to get even worse, as it is thought the rate at which new households are forming will accelerate during the coming decade.

Meanwhile the rate at which new homes are being built has been hit hard by the credit crunch, last year falling to its lowest level since 1948.

The CML said the combination of a shortage of supply and the credit crunch is making it increasingly difficult for first-time buyers to get on the housing ladder.

The average person buying their first property is currently putting down a deposit of around £34,000, equivalent to more than their total annual household income, and up from an average of £12,700 only three years earlier.

Unsurprisingly, the hefty deposits being demanded by lenders have led to an estimated 80% of first-time buyers aged under 30 needing help from their parents to get on the housing ladder, compared with 10% in the mid-1990s.

Bob Pannell, the CML's head of research, said: "The overall effect is that for those in the formerly typical first-time (buyer) age bracket of 25 to 34, the likelihood of buying at the moment is around half its level of a decade ago."

He added that for the foreseeable future the current constraints to the supply of both housing and finance look set to continue.

He said: "The effect of this is likely to be that first-time buyers will continue to face significant deposit challenges to enter the market, and that the trend of falling home ownership that had already begun before the credit crunch will continue."

On a brighter note, the CML said the recovery in house prices seen during 2009 reduced the number of people in negative equity by more than a quarter.

In April 2009, the group estimated that around 900,000 people owed more on their mortgage than their property was worth, but it believes the figure has since fallen to around 650,000.

Meanwhile, Liberal Democrat Treasury spokesman Vince Cable called for City regulator the Financial Services Authority to introduce a traffic light system on mortgages.

Dr Cable, who is due to address the CML's conference on responsible lending later this month, said: "The big, practical issue, so far ducked, is whether the banks should be set tough, new, proscriptive rules on loan-to-value ratios and multiples of income.

"The obvious basic principle of mortgage lending is not to lend more than the security available. This should be reinstated."

He said he would like there to be a yellow warning light on high-risk mortgages which lend 90% or more of a property's value, requiring the lender to carry out stringent checks.

New mortgages for 100% or more of a property's value would have a red light, meaning they were banned, although people who already had loans of this size would still be able to remortgage.