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Managing my financial journey
Managing my financial journey

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Managing my financial journey

1.2.6 The impact of the growth of home ownership

The following video looks at the historical trends in home ownership and house building in the UK and at the related changes to house prices and household debt.

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MARTIN UPTON
Since the Second World War and until the mid-2000s there was a steady growth of home ownership in the UK and a decline in the percentage of households living in rented accommodation. The sale of publicly-owned (or council) properties after 1979, triggered by the Conservatives 'right-to-buy' legislation, produced a particular increase in home ownership in the 1980s. The growth in home ownership contributed too and was supported by the growth in household debt which accelerated quickly from the mid-1980s, helped by the impact of the liberalisation of the financial services industry in the 1980s. Growing demand for property supported by growing finance underpinned the marked rise in house prices witnessed in the UK from the 1980s. House prices in London rose at a phenomenal rate.
For first-time buyers of property seeking to get onto the property ladder, growing house prices increased the cost of buying a property relative to household earnings. However those who could muster the finances to buy a property found that despite the larger home loans needed the affordability of mortgage repayments was contained by the decline in the level of interest rates after the 1980s. For those in London and the South-East things were, though, more challenging given the pace of house price inflation seen there.
A major contributor to higher house prices has been the downward trend in the building of new properties in the UK - a problem successive governments have failed to deal with. This shortage of supply has been a major contributor to the house price boom.
It has to be no surprise then that with the higher price of buying a home (particularly in London and the South-East of the UK) and the shortage of properties to buy, the last few years have resulted in a reversal of the trend of previous decades, with the percentage of those owning their homes falling from around 70 per cent to 65 per cent of households.
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During the period of growth in real incomes and living standards in recent decades, certain specific developments have triggered greater demand for financial products. One material development has been the rise in home ownership, with the percentage of households owning their own home in England rising from 51 per cent in 1979 to 70 per cent in 2006 (The Times Online, 2007). This period witnessed a continuation of the upward trend in home ownership in the UK seen since the start of the twentieth century, although in the last few years the percentage of homeowners has fallen slightly to 65 per cent.

A step-change to the proportion of homeowners in the UK occurred in the 1980s following the introduction of legislation by the Conservative government allowing council tenants to buy the properties they were renting. This was encouraged by offering the tenants often significant discounts off the market value, subject to how long the tenants had lived in the council property. Between 1980 and 1990, over 1 million properties transferred from public to private ownership under the right-to-buy (RTB) legislation.

The impact on the financial services industry of this growth in home ownership has been huge. With home ownership comes demand for mortgage products to facilitate the property purchase, investment policies to finance the repayment of certain types of mortgage products, possible bank loans to renovate the property and buy consumer goods, and the need for property insurance cover. It is therefore no surprise that the expansion of the financial services industry in recent decades can be related to the growth in home ownership.

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