The Homeownership FLAW In The UK’s Retirement CRISES

Owning a home will not protect you in retirement the way it used to. Experts estimate that a single person in the UK requires approximately £31,300 annually for a basic retirement and £43,100 for a comfortable one. These figures, however, assume that retirees no longer have to pay rent or a mortgage.

Unfortunately, the situation is worsening. According to The Telegraph, homeownership among retirees is predicted to drop from 78% to 63% by 2041, while the percentage of retirees renting privately is expected to rise from 6% to 17%, based on data from the Pensions Policy Institute. Even those who manage to purchase homes are likely to still be paying mortgages well into their retirement within the next two decades.

As house prices increase faster than average salaries, many young Brits find homeownership unattainable, meaning more future retirees may not own homes and might struggle to save enough to retire. For renters, retirement may require up to 40% more money for a moderate lifestyle in England, and in some parts of Scotland, this figure could be 60% higher. London, one of the most expensive cities globally, would see even higher figures.

Even well-paying pensions may not be sufficient to cover housing costs if retirees don’t own their homes outright. While UK government schemes exist to help first-time buyers—such as Stamp Duty relief and the Help to Buy ISA—these do little to address the growing gap between salaries and the rising costs of UK homes.

By the end of 2023, the average house price was 8.1 times the average salary in England and Wales, with demand continuing to outpace supply due to a lack of new housing developments. Longer mortgage terms of up to 40 years have been proposed as a solution, but they merely extend repayment periods, reducing disposable income and retirement savings.

As more people rent in retirement, they may increasingly rely on government social benefits, which could strain an already indebted UK government struggling to meet current pension obligations. In response, the government has already raised the retirement age, with further increases likely.

Today, however, younger generations are largely priced out of the housing market. Many now live with parents into their 40s and 50s, flat-share for longer, or rent into old age. Despite political promises to make housing more affordable, the continued lack of new housing only drives up prices further. Since the mid-1990s, real house prices have risen by 160%, while young adults' incomes have increased by only 23%, making homeownership increasingly out of reach for all but the wealthy or those receiving parental help.

In 1970, only 19% of home buyers received help from their parents. By 2012, this figure had jumped to 53%. Without wealthy parents, it’s estimated that a young adult needs to earn £25,000 more annually to afford a home.

Despite government awareness of these issues, four primary obstacles hinder meaningful change:
1. Lack of Housing Development: The UK is not building enough homes to meet the growing population's needs. Post-WWII, up to 400,000 homes were built annually, but this has fallen behind in recent decades. A shortfall of 4.3 million homes exists, with the number of homes per inhabitant lagging behind other European nations like Italy and France. Local opposition and the expensive, lengthy process of securing planning permission further limit the number of affordable homes being built.
2. Aging Population: Homeownership among older generations is stagnating the housing market. As the UK’s population ages, fewer homes are likely to come onto the market, as those over 50 tend to move less frequently, keeping house prices elevated.
3. Strict Mortgage Criteria: In the 1980s and 1990s, UK banks made mortgages easily accessible, often requiring little or no deposit. This led to a surge in household debt, peaking in 2007. Following the 2008 financial crisis, banks became much stricter, requiring stringent financial checks. Paradoxically, many people are unable to qualify for mortgages with lower monthly payments than the rent they’re already paying.
4. Decline in Social Housing: The Right to Buy scheme allowed council tenants to buy their homes at a discount, dramatically increasing homeownership rates. However, research shows that as many as 40% of homes sold under this scheme are now owned by private landlords.

These factors spell disaster for future retirees. The UK pension system relies on the assumption that retirees have either paid off their mortgages or live in affordable social housing.

For many, their home is their primary source of wealth, enabling them to downsize or tap into their property's value to supplement their pension. However, without homeownership, future retirees may find themselves working longer, even taking on second jobs, to make ends meet.