The Faults in the UK House Market and Why Empowering Homeownership Has Never Been More Important | Graham McClelland, Chief Commercial Officer, Generation Home
The story of a ‘broken’ housing market in the UK is not new. The UK housing market has long been plagued by numerous challenges that make homeownership an increasingly distant dream for many.
These stories typically focus on access to homes, and for good reason. The average age of first-time buyers is increasing, while the proportion of the population that own their own home is falling. Growth in property prices have outpaced wage inflation for decades. Not enough homes are being built, and the new homes that are built are often of the wrong type and in the wrong areas to truly help first-time buyers.
However, there is a second related issue that hampers change in the market. That is the outdated process of buying and owning a home.
The only real innovation in the market in the past 20 years is the growth of the aggregators, such as Rightmove and Zoopla. While these are great tools, they are funded by sellers (via estate agents) and are not there to champion the needs of the buyer.
Homebuyers do get help from mortgage brokers. However, the margins on offer are often so low that they do not have the time or resource to give all the assistance home buyers can need, and simply focus of securing a mortgage for customers they know they can serve. The other parties involved in the process, such as lenders and conveyancers, do not have the scope or resource to champion the needs of the buyer.
To solve the issue of access, the system of homeownership itself needs to evolve and develop.
Why is the rate of homeownership important?
One aspect is security of tenure. People want a secure place to live. As cliched as it sounds, people want a home and not just a house. People want to know they can put down roots, without fearing eviction. They want to know their children can go to a school that is close to home. They want to put down roots and invest in where they live.
Homeownership fosters a sense of community. People who own their home are more likely to know their neighbours and invest in the local community. Areas with higher home ownership levels are typically more prosperous, with lower levels of crime.
There is also a huge financial element. On an individual level homeownership allows people to build wealth as they pay down their mortgage, rather than passing rent through to their landlord.
On a societal level reduced homeownership means higher levels of housing benefit. Especially as the millennial generation starts to approach retirement. Gone are the defined benefit pensions. Instead, the average 40-year-old has a defined contribution pension with around £30,000 saved. It will be very tough for that ‘average’ person to afford any sort of retirement if they don’t own their own house absent a huge increase in their pension contributions. This means there is potentially a very, very large benefit burden heading to the taxpayer if we do not find a way to address the crisis in home ownership.
What Can We Do?
The obvious answer is to build more houses. Especially the type of homes people want to live in and in the areas where they want to live. We do not solve this crisis without fighting back against NIMBYism.
However, this is a huge oversimplification. More houses alone will not fix the issues at the core of the crisis. Absent broader change new houses may simply end up in the hands of landlords.
What we need to see is real change to the homebuying process. Someone inside the ecosystem to fight for the first-time buyer.
At Gen H we are building and developing an end-to-end home buying service to take our customers through the entire process. We have developed innovative lending products that help customers solve issues with deposit availability and with affordability challenges.
However, we are a very small (albeit growing) part of the market. We need all parts of the homebuying ecosystem to come together to work on new products, push innovation and find more ways to support greater homeownership. We support initiatives like Skipton’s recent 100% LTV product — something that can grow new homeowners when deployed sensibly.
There is also a need for the market participants to promote system and structural change. Buying a house should not take three months. The costs to transact should not be so high. Reducing friction should increase liquidity in the market and bring more property to the market.
The faults in the UK housing market have made homeownership an increasingly distant dream for many people. Absent real change this will only get worse. By addressing the faults in the housing market and implementing measures to increase affordability, expanding supply, and supporting first-time buyers, it will be possible to create a more inclusive and sustainable housing market.
Empowering people with the means to achieve homeownership not only improves their financial security but also fosters a sense of stability and community. It is high time we prioritise empowering individuals to own their homes and work towards a fairer and more accessible UK housing market.