The rise and rise of the lifetime renter has largely gone under the radar of the financial press and advisers.
Yet its potential disastrous fallout could rock the very foundations of UK retirement provision within two decades.
In my view, this is the most pressing problem of all from my top 10 pension priorities (listed below) for the chancellor’s imminent Budget.
Forty years ago, interest rates were at a stellar high. Getting on the housing ladder was difficult and mortgages rationed. Today it is far worse: housing costs have gone up by a staggering 974 per cent since 1983, according to the Halifax.
1. The lifetime renter
Single people today are largely excluded from home ownership in London. A joint income in excess of £100,000 will buy you a rabbit hutch in London’s Zone 2. Many will never afford their own home. Rent in London starts at £1,000 a month for a small flat.
My fear is that the UK’s successful pensions auto-enrolment policy could collapse like a house of cards if most workers become lifetime renters. In stark terms, the average saver on the auto-enrolment minimum plus the state pension will have enough for a frugal lifestyle but will not be able to afford to rent a home.
In 2017, almost three-quarters of people aged 65 years and over in England owned their home outright, with just 6 per cent renting from a private landlord. Now, one third of people in their 30s and mid 40s are renters. If you are not on the housing ladder by 50, the chances are, you never will be.
People currently in their 40s – the first generation with no defined benefit pension or other provision – will retire in 20 years’ time. If renting is then the norm, their rent will be too great a burden either for the state or the individual to finance unless action is taken now.
Department for Work and Pensions statistics show that at November 2022, almost 6mn people receive state help towards housing, either through housing benefit or universal credit, with housing benefit alone costing £23.4bn an year.
Indeed, a recent New Statesman article highlighted that that is “more than the total running costs of government departments including the Home Office, the Ministry of Justice and the Department for Transport. Only health and social care, education and defence account for larger shares of day-to-day spending”.
Advisers and mortgage brokers do an incredible job to make home ownership possible, but they alone cannot do all the heavy lifting. We need more social housing or possibly the return of mortgage income tax relief at source on loans to new home owners, as was the case in the 1970s. If that is in the ‘too difficult file’ for now, at least make a start on my next nine major pension problems.
