The landscape of British homeownership has been steadily shifting, with the high homeownership rates of older generations starting to slip. The years following the Second World War saw an unprecedented surge in homeownership rates, but as these waves recede, an uptick in the number of older renters is taking shape. We expect the number of over 65 rented households to pass 1m by 2033.
Younger generations, who missed out on the homeownership rush, are increasingly likely to become long-term renters. This shift is amplified by the recent increase in mortgage rates, which is making it particularly challenging for those attempting to climb onto the property ladder later in life. It has been a long-standing reality that stepping onto the ladder after 40 is tough, but with higher mortgage rates, the challenges are compounded.
The Shift Towards Renting in Older Generations
Over the next decade, we expect to see an increase in older households still repaying their mortgage beyond the conventional retirement age of 65. However, this increase is likely to be a fraction of the growing number who will be paying rent into their retirement. Over time this trend has the potential to shape the country socially, economicly and politically.
After a decade of steady growth, the number of older renters is set to accelerate over the next 10 years. A decline in homeownership rates among the tail end of the Baby Boomer generation and older members of Generation X is expected to translate into a rising number of older renters. Consequently, the number of households in England aged 65 and above renting their homes is predicted to double by 2030. Today, there are approximately 400,000 older households (over 65s) renting, and this figure is anticipated to exceed the 1,000,000 mark by 2033.
Homeownership Rates and the Next Generation
Currently, households aged 65 and above boast some of the highest homeownership rates in history. This is largely because they came of age during a time when homeownership was on the rise. As a result, just 5.7% of households aged over 65 today rent their homes privately. However, the English Housing Survey suggests that the following generation are nearly twice as likely to rent privately.
So even if homeownership rates remain unchanged, demographics suggest that within a decade, the share of over 65s renting will rise to 11.5%. This implies that fewer people reaching retirement age will own their homes.
The increasing number of older renters means that the total amount in annual rent paid by over 65’s is projected to increase from £5.1bn in 2023 to £12.7bn by 2033 (assuming no rental growth and reflecting rents at 2023 rates). In contrast, 78% of households aged 65 and above own their homes outright, and those with a mortgage pay around £1.8bn annually in repayments, less than half of what is paid in rent. To put these numbers into context, renters of all ages are likely to hand over around £69.0bn in rent this year.
Current and Future Rental Growth
Rents are rising across the board, suggesting that a squeeze in supply and increasing landlord costs are continuing to push up rents. Additionally, high mortgage rates are pricing out potential first-time buyers (and many would be landlords) fuelling rental demand.
The average rent on a newly let property in Great Britain rose to £1,273 pcm in June, an increase of £110 pcm or 9.4% compared to the same period last year. This marked the sixth strongest annual rent increase since our records began in 2014.
Strong growth has meant that the average one-bed rent (£1,017 pcm) now costs the same as the average two-bed just 15 months ago in April 2022. The average rent of a one-bed home in Great Britian passed the £1k pcm mark in May. Similarly, the average two-bed rent (£1,170 pcm) is now the same as what a three-bed cost in January 2022.
Rents are rising in all regions, although the pace of growth has cooled in Greater London and Scotland, as well as in the East of England. However, the North of England joined Greater London in witnessing double-digit growth in June, marking the fourth time on record that rents in the three Northern regions (North East, North West and Yorkshire and The Humber) rose by more than 10%, with all occurrences coming within the last 24 months.
And with interest rates set to stay higher for longer and few new landlords buying, these pressures seem likely to continue building over the medium term.