Housing bubble aftershocks

Two recent reports have highlighted how the British dream of home-ownership is going into reverse.

A survey of more than 14,000 potential house buyers by UK property website Rightmove shows that the number of "first-timers," mostly younger people, has fallen dramatically.

A second report by Oxford Economics reveals that home ownership has been on the decline for several years and predicts that by 2020, figures will fall back to levels last seen 30 years ago.

The British love affair with owning a home took hold in the 1980s. The then-British Prime Minister Margaret Thatcher set the tone by calling for the creation of a "property owning democracy." Her Conservative government set policies in place to deregulate mortgage financing and allow social housing tenants to buy their own homes.

Over the next 30 years, the price of the average British house doubled in value three times during successive economic booms. This inflation in residential property prices helped create an asset-rich class of baby boomers. But their children have been less fortunate.

Priced out

A generation ago, a young graduate could expect to climb the first rung of the so-called "housing ladder" within a couple of years of leaving university. As recently as 2007, banks required negligible deposits.

But latest figures suggest young people will have to save until they are at least 37 years old before they can afford the deposit on their first property.

"23 percent of those expecting to buy in the next 12 months will do so for the first time," Matthew James, of popular real estate web portal Rightmove, said.

"What we would expect to see in a healthier, more typical market, ie: before the credit crunch, is that proportion to be much closer to 40 percent."

"By far the single biggest concern, according to our survey is access to mortgage finance," James said.

Banks now demand the equivalent of 30-40,000 euros as a down payment, which some commentators think suggests further drops in property prices are expected.

UK house prices have already fallen 20 percent since their 2007 peak. They are still six or seven times a young person's average annual salary. Banks will now only lend you four times your annual income.

Renting Record

The lack of first-time buyers has caused a knock on effect in the rest of the property sector.

"Primarily what people are doing is renting privately," said Nicholas Hughes of the housing and homeless charity, Shelter.

"But that can be very expensive, particularly in London. Rents are rising, demand for properties is rising."

Not surprisingly, due to record rents and other increases in the cost of living, many young people are moving back in with their parents.

"The phrase is 'boomerang children,' people who go away, maybe go to university, get their first job and then find they can't afford to live independently," Hughes said.

More than 50 percent of 25- to 34-year-olds told another survey they doubt that they'll ever afford to buy a home.

The latest study by Oxford Economics suggests that at present 67 percent of the UK population own their own home. They predict that from a peak of more than 72 percent in 2001, home ownership will fall to 64 percent by 2021.

Housing Crisis

Experts warn that the UK is facing a severe housing crisis. Just 105,000 homes were built in England in 2011, the lowest level since the 1920s.

Although the previous Labour administration committed to a massive house-building program, the coalition government of Prime Minister David Cameron has abolished plans for regional house building targets.

Britain's National Housing Federation warns that if a woeful lack of new house building isn't reversed, as private rents continue to rise and social housing waiting lists increase, many young people will find their options are "limited and increasingly expensive."

Cameron has promised some funds to help first-time buyers, who are seen as critical to a healthy property market, to get on the property ladder.

But those still tempted to buy property in the current climate and who are not lucky enough to qualify may have to rely on the bank of mum and dad for their downpayment.

Author: Nik Martin
Editor: Stuart Tiffen