For many older borrowers, the shift represents success, as they have paid off their mortgages. However, for younger households, it indicates ongoing difficulties in buying homes, forcing them to continue renting.
According to Perenna, several factors contribute to this decline in homeownership. House prices have significantly outstripped wage growth, and strict loan-to-income (LTI) limits have reduced access to mortgage finance, disproportionately affecting young people. Approximately 380,000 fewer homeowners are now aged between 25 and 44 than if homeownership rates had remained constant since 2010.
In response, Perenna proposes two major policy changes for the new Labour government: embrace long-term fixed rate mortgages and remove the LTI cap.
Perenna pointed out that the current mortgage market is heavily weighted towards short-term fixed rate products, introducing significant interest rate risk for borrowers. The lender said the market would benefit from a broader range of mortgage options, including long-term fixed rate mortgages as rhese would remove the interest rate risk, enabling people to borrow more responsibly and helping first-time buyers into homeownership earlier in life.
Perenna added that the deposit issue in the UK housing market is partly due to the LTI cap, which restricts loan amounts often below what a household can afford on a long-term fixed rate mortgage. Current regulations allow lenders to provide loans above 4.5 times LTI for only about 15% of their loan book, typically prioritising wealthier borrowers who are already established homeowners.
