The FINANCIAL -- UK GDP growth is expected to average around 2.6% in 2015, easing slightly to 2.4% in 2016. There will also be a greater number of (mostly older) people than ever before owning their home outright – almost 35% of all households by 2025.
But the total UK owner occupation rate is projected to fall from a peak of nearly 70% before the financial crisis to around 60% of households by 2025.
House price growth projected to moderate to around 5% per annum, but the average UK house could be worth around £360,000 by 2020.
As house prices have risen much faster than earnings and social housing supply remains constrained, the number of households in the private rented sector has more than doubled since 2001, and this trend is predicted to continue with an additional 1.8 million households becoming private renters by 2025. This would take the total to 7.2 million households – almost one in four of the UK total in 2025. The trend is particularly strong in the 20-39 ‘Generation Rent’ age group where more than half will be renting privately by 2025, according to PwC analysis in its latest UK Economic Outlook report.
Also by 2025, PwC analysis finds that there could be slightly more people renting privately than owning with a mortgage. The number of households who own their home with a mortgage fell from around 10 million in 2001 to only around 8 million in 2014. This is projected to decline further to just under 7.2 million by 2025 as limited housing supply and mortgage availability make it harder for first time buyers to get on the housing ladder.
The good news is that there will also be record numbers of people owning their own home outright. This accounts now for 8.4 million households and PwC projects this will rise to 10.6 million households by 2025, around 35% of the total. A key driver is the rising proportion of over 60 year olds in the UK, who are far more likely to have paid off their mortgages.
“Driven by a decade of soaring house prices pre-crisis and lower loan-to-value ratios post-crisis, the deposits needed by first time buyers have risen significantly. As a result, a generation of private renters have emerged and this will increasingly be the norm for the 20-39 age group”, Richard Snook, senior economist at PwC, said.
“There is also a rising dichotomy in the market between those (mostly older) households who own outright and those (mostly younger) households who still have a mortgage or rent to pay.
“Overall, we project that the proportion of owner occupiers, with or without a mortgage, will decline from its peak of around 70% in the mid-2000s to only around 60% in 2025. The long rise in the UK owner occupation rate in the post-war years seems to have gone into reverse.”
“In the long run, a large and sustained increase in affordable housing supply will be required to meet the needs of a UK population that is growing relatively rapidly by European standards. This could involve a range of measures including further planning reform, action to address skills shortages in the housebuilding sector and enhanced financial incentives to build more homes. But cuts to social rents announced in the Budget will tend to work against this for local authorities and housing associations, while private developers may be cautious about expanding too rapidly,”John Hawksworth, chief economist at PwC, added.
“So we expect housing supply shortages to persist for at least the next decade and realistically expect to see a continuing rise in Generation Rent until at least 2025.”
UK house price growth has moderated since last summer, particularly in London. But persistent lack of supply means that medium-term UK house price growth is projected by PwC to average just over 5% per annum over the period to 2020. This implies that the average residential property in the UK could be worth around £279,000 in 2015, rising to around £360,000 by 2020.