OUT OF REACH: HOW HOMEOWNERSHIP SLIPPED AWAY IN THE UK
Exploring the Forces That Have Pushed Homeownership Beyond Reach for Many in the UK
It has become beyond question that the United Kingdom currently faces a remarkably complex problem, one that grows larger day by day. Existing homes are in the poorest condition of all European countries. 15% fail required quality standards. Housing costs have increased so dramatically that 11.3 million Britons spend more than 40% of their household income on their homes – more than any other country in Europe. Additionally, the OECD found that the responsiveness of supply to housing demand in the UK was the weakest amongst developed countries.
Low-deposit mortgages seem to be no longer working, and affordable housing is becoming scarcer, leaving homeowners with no choice but to rent.
How did the UK fail to meet the needs of its growing population? Why aren’t there sufficient homes?
It was not always this way.
In the early 1970s, almost a third of homes across Great Britain were officially designated as affordable social housing, provided by local authorities. Councils built large numbers of homes to accommodate working families and address post-war housing shortages.By the late 1970s, nearly 33% of households in Britain lived in council housing, providing a decent alternative to home ownership. For those who could buy, the average price in the UK was £4,057.
However, this began to shift with policy changes in the 1980s, such as the Right to Buy scheme. The scheme enabled council tenants to buy their homes at a reduced rate, and had existed for years, but the Thatcher government “turbo-charged it with big discounts” in the 1980s Housing Act (The Guardian, UK Housing Crisis). While this policy increased homeownership, it also significantly reduced the stock of affordable homes. Within five years of the Right to Buy initiative's launch, England alone saw the sale of half a million council homes. The combined impact of these sales, along with property demolitions and later transfers of council homes to housing associations, has drastically reduced the availability of council housing since the 1980s. Between 1980 and 2010, social housing construction slowed, and councils increasingly transferred housing stock to housing associations to manage and maintain these properties with limited government funding.
Between the 1980s-90s, the UK’s mortgage market underwent significant deregulation. Key reforms allowed banks and other financial institutions to compete aggressively with traditional building societies, which had long dominated the mortgage market. As competition grew, many banks began to offer high loan-to-value (LTV) ratios, allowing buyers to borrow up to 100% or more of the property’s value. By 1990, around 20% of new mortgages had LTVs of 100% or higher, making it easier for households to enter the housing market without large down payments: “the days of having to prove you could save before you could borrow were over, and more money came into the system.” (The Guardian, UK Housing Crisis).
“The days of having to prove you could save before you could borrow were over, and more money came into the system.”
As more lenders entered the market, so increased the pressure to offer more flexible mortgage terms, including interest-only options and minimal income verification procedures. The surge in borrowing led to a sharp increase in housing prices and higher debt-to-income (DTI) for buyers. When the economy slowed in the early 90s, borrowers were caught in “negative equity.” This led to a surge in repossessions.
The supply and demand imbalance continued to intensify as looser mortgage lending standards enabled more people to buy homes, but new housing construction lagged. By 1992, the UK completed only 179,100 new homes, a sharp drop from the levels seen 20 years earlier. With demand outpacing supply, housing prices surged, reflecting the strain of limited availability amid heightened purchasing power. This imbalance further fueled housing market volatility and affordability issues as prices escalated due to the persistent gap between available homes and buyer demand.
In September 1996, the Association of Residential Letting Agents (ARLA), along with four lenders, introduced the "buy-to-let" scheme. This initiative made property investment more accessible by offering tailored mortgages that factored in rental income, encouraging individuals to purchase rental properties. Over the next two decades, declining interest rates and rising property values reinforced the appeal of real estate as a profitable investment. By 2014, nearly 200,000 buy-to-let mortgages were issued, significantly expanding the rental market and contributing to rising home prices as investor demand drove up competition.
UK house prices soared to unprecedented levels until the 2008 global financial crisis, which began with the bankruptcy of Lehman Brothers in the U.S. This crash prompted UK lenders to withdraw high-risk mortgage products and severely restrict lending. As a result, securing a mortgage became increasingly challenging, especially as the recession impacted jobs and savings. With social housing supply dwindling and homeownership costs rising, more people turned to private rentals, leading to a decline in the percentage of owner-occupied homes. This shift reflected a broader trend as affordability barriers pushed many out of the home-buying market.
In 2013, as the housing market struggled to recover outside London, with sluggish construction and fewer first-time buyers due to high deposit requirements, the UK government introduced the Help to Buy scheme. This “dramatic intervention” aimed to stimulate the market with two key programs: one provided equity loans for new homes, expanding on a scheme for first-time buyers, and the other offered mortgage lenders government-backed guarantees to reintroduce 95% mortgages. However, just a week after the budget announcement, economists from the Office for Budget Responsibility warned that Help to Buy would likely drive up home prices rather than increase the overall housing supply, having limited impact on meeting demand.
The final blow to the UK’s housing system was the financial distress caused by the 2019 Coronavirus pandemic. Post lockdown, many businesses boomed, and these aftershocks were reflected in housing prices. Prices climbed by 8.5% during 2020, according to figures from the Office for National Statistics.
The UK housing crisis has reached a critical point, with soaring property prices, limited new construction, and barriers to affordable homeownership leaving many without stable housing options. Decades of shifting policies—from the sale of council housing to limited social housing construction and financial deregulation—have contributed to a system where demand significantly outpaces supply, particularly in urban areas. Programs like Help to Buy have stimulated buyer interest but have also pushed up prices, making housing less affordable overall. Meanwhile, private renting has surged as many are priced out of homeownership, and the percentage of households able to buy homes continues to fall. Addressing this crisis requires a balanced approach: increased social housing, sustainable development policies, and targeted support for both renters and first-time buyers to create a more accessible and stable housing market.
Sources:
Aspen Woolf - UK Housing Crisis - Analysis of the UK's soaring property prices, supply and demand issues, and government interventions
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Shelter England - The Story of Social Housing - Insight into the history of social housing and the effects of the Right to Buy policy
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London School of Economics - Mortgage Market Deregulation - Overview of mortgage deregulation in the 1980s and its impact on housing affordability
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New Economics Foundation - Financialisation of UK Homes - Discussion on mortgage lending trends and their long-term impact on housing prices
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ResearchGate - Financial Deregulation and UK Housing Finance - Examination of financial deregulation effects and the evolution of mortgage lending in the UK
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Office for National Statistics - Living Longer and Housing Tenure - Statistical data on housing tenure changes and the decline in social housing stock
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National Housing Federation - History of Housing Associations - Historical context of housing associations' role in social housing development
