Homeowners are taking longer to repay their mortgages than before the financial crisis, despite putting down bigger deposits when they first buy a home.

In 2007, the average homeowner had netted at least 70% equity in their property by the time they were aged between 51 and 55. But today borrowers are waiting five years longer to reach this milestone.

Younger borrowers are also putting down bigger deposits than they were a decade earlier, according to insurer Royal London.

The typical 18 to 25-year-old put down 10% to 15% as a deposit last year, compared with just 5% to 10% for the same age group in 2007.

Despite this, by the time homeowners are aged between 26 and 30, they are typically sitting on an equity stake of just 15% to 25%, compared with one of 25% to 50% for the same age group in 2007.

Becky O’Connor, personal finance specialist at Royal London, said: "Moving up the housing equity ladder helps you to access better interest rates and makes homeownership more affordable.

"But as the age of first-time buyers has risen, families are having to wait until later in life before they make a serious dent in their mortgage and can benefit from lower rates."

Why is this happening?

Royal London attributed some of the difference in equity levels to more stringent affordability rules introduced for lenders since the financial crisis.

And changes to the rate at which house prices are rising has also had an impact.

Homeowners accrue equity in their properties faster during periods of high house price growth, but in the current subdued market their main means of increasing the proportion of their property that they own outright is through mortgage repayments.

Who does it affect?

Borrowers are typically aged between 36 and 40 before they have at least a 25% equity stake in their home.

And it is not until homeowners reach the 51 to 55 age bracket that they own at least 50% of their property.

The proportion of borrowers above the state pension age of 65 who need a loan of between 30% and 50% of their home’s value has been steadily increasing since the financial crisis.

Last year, 27% of 66 to 70-year-olds were in this position, compared to 21% in 2009.

What’s the background?

While owning a bigger share of their property might make homeowners feel good, there is a practical and financial side to having a large equity stake too – mortgage rates are typically lower for people who are borrowing a smaller percentage of their home’s value.

A best-buy two-year fixed rate mortgage for someone with only a 10% deposit or equity stake is 1.84%, but this falls to 1.54% for someone with a 40% stake.

As a result, annual repayments on a £200,000 mortgage are more than £350 a year cheaper, giving homeowners more money to play with if they want to make overpayments on their loan.

Top 3 takeaways

• Homeowners are taking longer to repay their mortgages than before the financial crisis

• In 2007, the average person owned 70% or more of their home by the time they were aged 51 to 55, but today borrowers are having to wait five years longer to reach this milestone

• Younger borrowers are also putting down bigger deposits than they were a decade earlier

Homes in less than one in 10 areas have ‘earned’ more than their owners in the past two years as house price growth continues to slow.

Only 8% of local authority areas recorded increases in property values that have outstripped local average pay during the period, down from 18% in 2017 and 31% in 2016, according to Halifax.

Richmond-upon-Thames was one of the few areas to buck the trend, with house prices rising by £55,483 more than local people earned during the period.

It was followed by Winchester, where homeowners earned an average of £45,016 more from their property than their job, and South Bucks, where property price rises outpaced earnings by £41,376.

Top 10 local authority districts (LADs) over the last two years:

Why is this happening?

A combination of factors has led to a fall in the number of areas in which homeowners earned more from their property than their job.

On the one hand, a combination of economic uncertainty and stretched affordability has put the brakes on house price growth, with increases in property values recently falling to a six-year low, according to the Office for National Statistics.

At the same time, after years of subdued rises, wage growth has started to pick up again and is currently outpacing house price increases.

Who does it affect?

Russell Galley, managing director at Halifax, added: “While the slowdown in house price growth may not be welcomed by homeowners, the narrowing gap between prices and wages should improve mortgage affordability for all, meaning that a larger house, home extension or even a first property are all more attainable.”

However, it is welcome news for homeowners in one of the lucrative areas, who have the potential to crystallise their housing equity when they sell up.

What’s the background?

Six of the top 10 areas where house prices are continuing to outperform salaries are in London and the south east.

West Devon, in the south west, was the area with the biggest difference between house price growth and earnings outside of these regions at £35,460.

Bromsgrove was the only place in the West Midlands to make it into the top 10, with house prices outstripping earnings by £25,303, while Harborough was the only local authority in the East Midlands on the list, with homes there earning £14,437 more than their owners in the past two years.

Despite 28 local authorities seeing house price growth outpace local earnings, on a regional basis, earnings were higher than house price gains across the UK.

The biggest gap was in Scotland, where people earned an average of £35,250 more than their home increased in value, followed by Yorkshire and Humber at £32,258 and the north west at £32,114.

London had the smallest gap, but even here earnings outpaced house price rises by an average of £19,649.

Regional performance over the last two years: 

 

A similar pattern was seen over a longer period, with London the only region in which house price increases outstripped average earnings over five years, with homes making £23,817 more than their owners.

At the other end of the scale, people in Scotland earned £79,675 more than their homes in the same period.

Regional performance over the last five years:

 

On a local authority basis, homeowners in Three Rivers in Hertfordshire saw the biggest gains, with their properties earning an average of £88,281 more than them.

It was followed by Waltham Forest and Brent, both in London, where house price gains outstripped earnings by more than £78,757 and £78,667 respectively.

Top 10 LADs over the last five years:

 

Top three takeaways

• Homes in less than one in 10 areas have earned more than their owners in the past two years as house price growth continues to slow

• In 2017, house price rises in 18% of areas outstripped earnings, and in 2016 the figure stood at 31%

• Richmond-upon-Thames was one of the few areas to buck the trend, with house prices rising by £55,482 more than local people earned during the period

Rents in northern regions are at their most affordable for a decade, as a result of weaker employment growth and lower barriers to becoming a homeowner in these areas.

At a national level, renters spent an average of 30% of their take-home pay on accommodation in the final three months of 2018, in line with the average over the past 10 years, according to Zoopla.

But the headline rate masked significant regional variations, with rents in Yorkshire and Humber taking up only 25% of earnings, while tenants in the capital handed over 39% of their pay.

The study, which looked at the affordability of renting in the private sector for someone in full-time work, also found that while affordability had remained broadly static in some areas, rents had soared by more than 20% in the past decade in others.

Where is it most affordable to rent a home?

Weak rental growth has left northern regions as the most affordable places in which to be a tenant in the private sector.

The north east has the lowest rents in absolute terms at an average of just £452, followed by Yorkshire and Humber at £501 and Wales at £528.

But when rents are considered as a proportion of take-home pay, Yorkshire and the Humber is the most affordable region, with tenants handing over just 25% of net earnings.

The north east is the second most affordable region with rents that are the equivalent of 26% of take-home pay, followed closely by the north west at 27%.

Where is it most expensive to be a tenant?

Unsurprisingly, rents are most expensive in London, at an average of £1,249, the equivalent of 39% of take-home pay.

The south east has the second highest level of rent at £870, followed by the east at £773 or 34% of post-tax earnings.

But the situation is improving in the capital, and after growing rapidly up until 2014 as employment levels expanded and the city saw a high level of in-migration, rents have since stagnated.

In fact, average rents in London are the same today as they were in 2014 due to stretched affordability acting as a break on further increases.

Rental affordability in the capital peaked at 43% of take-home pay in 2017, before falling back to 39% last year, in line with the long-run average for the region.

How much has affordability changed in the past decade?

Across Great Britain as a whole, rents have increased by 16% during the past decade, broadly in line with changes to average earnings.

The north east has seen the smallest change, with average rents edging ahead by only 1%, while rises were also subdued in the north west at 5% and Yorkshire and Humber at 9%.

By contrast, the cost of being a tenant in the east has soared by 23% since 2007, while it is 20% higher in the West Midlands.

Rents have also been hiked by 18% in London, the south east, Scotland and Wales in the past 10 years.

Top 3 takeaways

• Rents in northern regions are at their most affordable for a decade

• At a national level, renters spent an average of 30% of their take-home pay on accommodation in the last three months of 2018

• Yorkshire and Humber has the most affordable rents, while London has the least affordable ones, although the situation is improving

Today is Mortgage Freedom Day – the day by which borrowers have earned enough money to cover their repayments for the whole of 2019.

It takes homeowners until April 16 to earn the £8,729 the average person spends on their mortgage each year, based on a typical annual income of £28,752 after tax, according to Halifax.

Andy Bickers, mortgages director, Halifax, said: “If every penny earned this year went towards their mortgage today would be the day that the average UK borrower could celebrate paying off their mortgage for the year.”

Mortgage Freedom Day also fell on April 16 in 2018, suggesting there has been little change in affordability for homeowners in the past year, despite the Bank of England base rate rising by 0.25% in August last year.

There has also been little change in the date since 2014, with it moving back by just six days, mainly due to wage growth and house prices remaining broadly stable during the period.

Why is this happening?

Mortgage repayments are the single biggest monthly expense most homeowners face, so it is unsurprising that it takes an average of nearly a third of a year for people to earn enough to cover them.

But interest rates at close to record lows and intense competition among mortgage lenders, have helped Mortgage Freedom Day remain relatively stable during the past five years.

Who does it affect?

Unsurprisingly, there is significant regional variation in when Mortgage Freedom Day occurs.

It comes soonest for people living in Scotland, arriving on March 8, while those in Northern Ireland can celebrate in on March 12.

The day also falls in March for homeowners in the north and north west.

At the other end of the scale, people in Greater London have to wait until June 20 before they have earned enough to pay their mortgage for the whole year, while it takes until May 22 for people in the south east and until May 5 for those in the south west.

In terms of individual local authorities, Copeland in Cumbria has the earliest Mortgage Freedom Day of February 18, and Brent in London has the latest one, with homeowners having to wait nearly seven months more until September 5.

What’s the background?

People who rent a home have to wait an average of 10 days longer than homeowners before they have earned enough to pay for their accommodation for a year, with Rent Freedom Day coming on April 26.

Like Mortgage Freedom Day, the date is unchanged compared with 2018.

But while regional variations follow similar patterns to those for Mortgage Freedom Day, the gap between the various dates is bigger for those who rent their home.

Northern Ireland has the earliest Rent Freedom Day of March 24, followed by the north at April 1.

Greater London again had the latest date, although at July 30, it comes more than a month later than Mortgage Freedom Day.

Top 3 takeaways

• April 16 is Mortgage Freedom Day – the day by which borrowers have earned enough money to cover their repayments for the whole of 2019

• Northern Ireland has the earliest Mortgage Freedom Day of March 12 and Greater London has the latest one of June 20

• Rent Freedom Day comes 10 days later, falling on April 26

Landlords could be barred from evicting a tenant at short notice without a good reason as part of a government overhaul of the rental sector.

The Government has launched a consultation on abolishing Section 21 notices for eviction. The so-called no-fault evictions, currently allow landlords to evict tenants with just eight weeks’ notice once their fixed term contract has come to an end.

The move will effectively create open-ended tenancies, which the Government claims will bring greater peace of mind to people who live in rented accommodation.

Landlords will still be able to evict tenants for reasons recognised under law, such as if they fall into rent arrears or damage the property, but they may have to go through the courts to do so.

The Government also plans to amend the current rules so that landlords can regain their property if they want to sell it or move into it.

But despite these concessions, the Residential Landlords Association (RLA) warned it could put people off investing in property.

Why is this happening?

The Government claims that evidence shows no-fault evictions are one of the biggest causes of homelessness for families.

It adds that allowing them not only leads to tenants living with the worry of losing their home, but also contributes to people putting up with poor conditions as they are afraid to complain about problems in case they are evicted.

It hopes the move will not only give renters more stability but will also mean people no longer put up with sub-standard accommodation.

Who does it affect?

The move would obviously be good news for tenants, and it has been welcomed by housing charities.

But the RLA warned the Government there were “serious dangers” if it got the reforms wrong.

David Smith, policy director at the RLA, said: “With the demand for private rented homes continuing to increase, we need the majority of good landlords to have confidence to invest in new homes.

“This means ensuring they can swiftly repossess properties for legitimate reasons such as rent arrears, tenant anti-social behaviour or wanting to sell them.”

Jeremy Leaf, a former RICS residential chairman, also claimed that no-fault evictions affected only a small number of tenants.

He said: “On the ground, we don’t find this happens frequently at all, so hope that a thorough evidence-based consultation will flush out the extent of the problem.

“This will ensure that landlords do not desert the sector unnecessarily.”

The Institute for Public Policy Research welcomed the announcement but called on the Government to go further and introduce caps on rent increases and prevent landlords from evicting families within the first three years of signing a tenancy agreement if the only reason was to sell the property.

What’s the background?

The latest consultation is part of an overhaul of the private rental sector, which the Government has described as being the biggest for a generation.

Other changes that are coming into force including banning letting agents from charging fees to tenants and capping tenancy deposits at the equivalent of five weeks’ rent.

It has also announced plans to introduce a specialist Housing Court to resolve property disputes.

Around 4.5 million households currently live in privately rented homes.

Top 3 takeaways

• The Government has launched a consultation on abolishing so-called no-fault evictions

• The move will effectively create open-ended tenancies

• The Residential Landlords Association (RLA) warned it could put people off investing in property

A recent court ruling could potentially open the way to challenges to the 3% stamp duty surcharge levied on additional homes.

It could offer an opportunity for those who have already paid the charge to request a refund from HM Revenue and Customs (HMRC) – and could set a precedent for other buy-to-let investors.

What’s the background?

Since April 2016, buyers have had to fork out an extra 3% in stamp duty when buying a second residential property for £40,000 or more, such as a holiday home or buy-to-let.

HMRC calls it the ‘Higher Rates on Additional Dwellings’ or HRAD for short.

What’s happened now?

A recent tax tribunal in Bristol found in favour of Paul and Nikki Bewley, and said they didn’t have to pay this 3% charge as they were buying a property which was, at the time, uninhabitable – even though HMRC contested it.

The Bewleys purchased a derelict bungalow in Weston-Super-Mare for £200,000 as a buy-to-let investment in January 2017.

At the time, the property was riddled with asbestos and had no central heating – and was not fit to live in.

The couple decided to demolish the original building so they could build a new home in its place.

They did so in the belief they would not be liable for the 3% surcharge for purchasing a second home. 

How much stamp duty did they pay?

When the Bewleys bought the property, they paid the normal rate of stamp duty of £1,500.  However, they were later told by HMRC they should have paid £7,500.

What does the law say?

According to the Housing Act of 1967, a property must have a cooking and bathing facilities and a lavatory to be deemed habitable.

What did HMRC say?

HMRC contested this and said it believed the higher rate of stamp duty was applicable on the grounds that a property was capable of being used as a dwelling sometime in the future.

What did the tribunal rule?

However, the tribunal ruled against HMRC and sided with the Bewleys, stating they shouldn’t be liable for the 3% surcharge because the property was not fit to live in immediately.

Due to the ruling, the couple ended up only having to pay the standard rate of stamp duty – a sum of £1,500.

Who does this affect?

Experts say this landmark case could open the flood gates for hundreds of claims from buy-to-let investors who paid the surcharge for the purchase of properties that needed renovation.

This could mean homebuyers who voluntarily overpaid on their tax will now seek to claw back millions of pounds in refunds from the taxman.

Specialist buy-to-let broker, Commercial Trust Limited, says this judgement suggests buy-to-let investors may have a case for exemption from the 3% surcharge if they are buying a property that is uninhabitable at the time of purchase.

It adds that potentially, this ruling could represent an opportunity for retrospective claims from buy-to-let investors who have paid the additional charge on properties that were uninhabitable at the time they were bought.

What does this mean for investors?

This verdict will come as welcome news to the ears of buy-to-let investors who have been hit from all sides recently by a combination of higher stamp duty costs, the loss of tax reliefs and stricter mortgage lending criteria.

This has made it harder for many to generate a decent income and led to many investors quitting the market.

Going forward, buy-to-let investors eager to avoid the 3% surcharge will try to look to take advantage of this loophole by purchasing properties that are derelict or uninhabitable.

What will happen next?

HMRC says it is considering the judgement carefully. But it is also expected to challenge people wherever it can – as there’s a great deal of money at stake if HMRC can force additional homeowners to pay the 3% stamp duty surcharge.

However, going forward, we could expect to see major legal arguments over what constitutes a ‘dilapidated home.

 

Top 3 takeaways

• HMRC loses a court case against a couple who were charged additional rate stamp duty on a property that was uninhabitable at the time of purchase

• Homebuyers who overpaid the tax in the same way could now seek to claw back millions from the taxman

• New investors may may take advantage of new loophole to avoid the 3% surcharge.

Just 165,090 new homes were built in England in 2018, well short of the Government’s target to have 300,000 additional properties completed every year.

There was also no increase in the number of properties started during the year compared with 2017, despite a raft of government measures to accelerate housebuilding levels.

Most worryingly of all, the Ministry of Housing, Communities and Local Government figures showed a sharp fall in building levels during the final quarter of the year, with new starts dropping by 8% compared with the previous three months.

The housebuilding industry has failed to recover since the global financial crisis, with the number of new properties started in the final quarter of the year still 17% lower than the peak reached in the first quarter of 2007.

It appears unlikely that the Government will fulfil its 2015 pledge to build one million new homes by the end of 2020.

Why is this happening?

Housebuilding levels are being held back by a number of factors, ranging from a shortage of labour and building materials to the length of time it takes to get planning permission on land.

The sector has also been impacted by the slowdown in the wider housing market as a result of Brexit uncertainty and stretched affordability.

Who does it affect?

The low number of new properties being built means the mismatch between supply and demand looks set to continue, which will put further upward pressure on prices.

The situation is bad news for anyone who wants to get on to the property ladder or trade up it.

Estimates for the number of new homes the UK needs to build each year to keep pace with population growth range from 240,000 to 340,000.

But housing completions have not reached even the lower end of this level since the 1970s.

What’s the background?

In September 2015, the Government pledged to deliver one million new homes by the end of 2020.

But with just two years to go, only 504,650 new properties have been completed in England.

Additional homes will have been added to the country’s housing stock through conversions and change of use, although homes created in this way only reach the low tens of thousands each year.

In its election manifesto in 2017, the Conservative reaffirmed the commitment to build one million new homes by 2020, adding a further pledge to build an additional 500,000 properties on top of this target by the end of 2022.

The Government has also previously stated that it plans to increase the housing supply by 300,000 new properties a year by the mid-2020s, as part of a five-year £44 billion housing programme.

Last year housebuilding levels reached a 31-year high, but at 220,000 the figure was still significantly below this target.

In 2016, the Government allocated £1.2 billion to build 200,000 Starter Homes, which would be sold to first-time buyers at a 20% discount, but no properties have so far been built under the scheme.

Top 3 takeaways

• Just 165,090 new homes were built in England in 2018, well short of the Government’s target to have 300,000 new properties completed every year

• There was no increase in the number of properties started during the year compared with 2017, despite a raft of government measures to accelerate housebuilding levels

• Building levels fell by 8% during the final quarter compared with the previous three months

Where are the worst performing buy-to-let towns?
Outside of London, towns within commuting distance of the capital offered some of the lowest buy-to-let yields, largely due to high house prices.

What about London?

Top 3 takeaways