Speaking to Money Marketing at last week’s FSA mortgage sector conference, Malone says UK housing market will be dominated by people renting rather than owning their own properties in future.
He says: “We got too obsessed with homeownership, with right to buy, trying to create a mortgage for all, and everyone was able to borrow and buy as they wished. That has proved to be poor decision-making on all our parts. We will have to get used to telling a lot of people that homeownership simply is not right for them.
“We may also have to get used to a different culture, where renting is no longer seen as a failure, it will just be seen as different. People may rent for many years and that will become part of the fabric of society.”
Malone notes that another cultural point which must change is the idea of maintaining homeownership in retirement for those without sufficient pension savings.
He says: “People will reach retirement and decide to sell their property. They will not buy another one or take out an equity release product but choose to rent and put the money into a fund with a pension firm. Within the next five to 10 years, we will have a much more rental-based culture.”
“The equity release industry will not decline necessarily but it has got some issues it must face as more people downsize and mortgages bec-ome rarer.
“There are going to be more challenges for equity release from the EU, which is a lot more strict with regard to lending to older people. These restrictions may become grea-ter in the wake of some of the horrible problems we are seeing in Spain regarding lending to older people right now.”
Malone argues that the buy-to-let landscape will change dramatically across the UK. “I see pension funds like Aviva, Legal & General and Prudential buying large portfolios of property to rent out, possibly through large estate agents.
“The bigger landlords with 250 or 300 properties could sell them on to these life firms or large property companies. But the amateur, one-property landlord and the smaller professional landlord with 20 or 30 properties will get squeezed with all the restrictions and red tape.
“Some developers might even build to order for a development to then be purchased by a pension fund or other large institution.”
Malone believes distribution will have to adapt to fit in with this new world. He says: “One of the major elements for someone like PMS is to engage the IFA much more in creating a relationship with a borrower who rents so they can still offer other financial products.
“Advisers will also have to tell clients they do not have the wherewithal to buy a home, they have to explain the rationale as to why they will be renting. At the same time, we need to work on encouraging more of the public to be regular savers, not regular spenders.”