Outright homeowners overtake mortgage holders for first time

The proportion of the 22 million households in England that own their homes outright rose to 32.7% in 2013-14

For the first time the proportion of households where the property is owned outright by its inhabitants has overtaken those which have a mortgage. The finding highlights the changing financial make-up of the country's households and is likely to embolden those arguing that the Bank of England can safely begin to increase interest rates without threatening the recovery.

The English Housing Survey reported yesterday that the proportion of the 22 million households in England that own their homes outright rose to 32.7 per cent in 2013-14. This took the proportion above the 30.7 per cent of households who own their homes with a mortgage, the first time it has been higher since the survey began 35 years ago. There were 7.4 million outright owners versus 6.9 million who own homes with a mortgage. The relative decline of the proportion of households with outstanding mortgage debts was reflected in a survey commissioned by the Bank of England at the end of last year. This showed the majority of mortgage borrowers could cope if interest rates rose from their current level of 0.25 per cent to 2 per cent. The proportion of households in debt distress would rise from 1.3 per cent to 1.8 per cent under those circumstances, it found.

However, that calculation was based on the assumption of family incomes rising by 10 per cent. Further, the Treasury’s official forecaster, the Office for Budget Responsibility, has forecast that families will take on significantly larger mortgages over the coming five years as house prices rise, pushing up household debt levels and increasing the potential financial vulnerability of households to rising interest rates.

 

The Bank’s nine-person Monetary Policy Committee voted this month to keep interest rates on hold in the light of rapidly falling inflation. But the Bank’s Governor, Mark Carney, has repeatedly signalled that interest rates are still likely to rise gradually over the coming years.

The English Housing Survey also showed a continuing surge in private renting, with the proportion of private renting households rising to 19.4 per cent, up from 12 per cent in 1980. That trend has been ascribed by analysts to the dwindling rates of new social housing construction and the difficulties faced by younger families in buying homes.

The proportion of 25 to 34-year-olds who own their own home has collapsed in the past decade, dropping from 60 per cent in 2003-04 to just 36 per cent in 2014. The survey also showed that almost half of this age group now rent their homes privately, up from a fifth 10 years ago. In London, where prices have risen dramatically, more people now rent privately than own either outright or with a mortgage.

Analysts attribute the large increase in private renting and falling home ownership rates in recent years to a large shortfall in the number of homes being built. House building in England collapsed in 2008. Construction starts in 2014 were the highest since 2007, but the most recent figures show that there was a 20 per cent quarterly fall in the second half of last year.

The OECD, in its biennial survey of the UK economy, warned yesterday that the supply of new housing is failing to meet demand. It also said that rising house prices pose a potential risk to financial stability.

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