The UK's Housing Crisis is Creating a Generation of Broke Retirees
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Loading... - Conor Murphy
- 24 Jan 2025
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The UK's housing affordability crisis is having a profound impact on the financial stability of future retirees. A recent study has revealed that many individuals will still be facing monthly mortgage or rent payments well into retirement, unless significant changes are made to the current system.
The affordability crisis in the UK housing market is characterized by high house prices relative to average earnings, making it increasingly difficult for people to save for a deposit and secure a mortgage. The first-time buyer house price to earnings ratio stands at 5.0, far above the long-run average of 3.9. This makes the deposit hurdle exceptionally high, and the situation is further exacerbated by the rental crisis, where rents have risen far faster than wages.
The study found that a prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 36% of their take-home pay. This is well above the long-run average of 30%. Furthermore, the number of mortgage approvals has returned to 2019 levels, despite typical mortgage rates being around three times higher.
To cope with the affordability crisis, many people are turning to long-term mortgages, with terms of 35 years or more. This has led to a "significant rise" in people aged over 36 taking out such loans, according to wealth management firm Quilter. However, this approach can lead to dramatically higher total borrowing costs and delay financial independence.
First-time buyers are increasingly relying on financial support from their parents to get onto the housing ladder. Gifts and loans from the Bank of Mum and Dad totalled £9.4bn in 2023, and this figure has nearly doubled in the last five years. However, this approach is only available to already-wealthy families and will inevitably increase inequality.
The government has promised to build 1.5m homes before the end of its term, an ambitious figure that has garnered widespread support from across the political divide. However, some analysts think the government will still struggle to hit its goals due to land availability, affordable housing, productivity, and labor shortages.
The UK's housing affordability crisis is creating a generation of broke retirees, with many individuals facing significant financial insecurity in their golden years. To address this issue, the government must prioritize building more homes and implementing policies that make housing more affordable for all.
