The traditional life journey of home ownership, starting a family, watching the kids fly the nest, and then retirement, has been somewhat disrupted in recent years.
It used to be the case that an Englishman’s home was his castle. As well as being a nation of shopkeepers, we were a nation of homeowners.
Today, more in keeping with our continental neighbours, we’re fast becoming a nation of renters.
This shift from home ownership to renting, albeit still in its infancy, could have significant implications for our long-term financial planning.
New research carried out by insurer Royal London has found that around half of all babies born in Britain are born into rented accommodation.
That equates to approximately 365,000 babies each year, born to parents who are renting instead of owning their own homes.
And more than half of these new babies, according to the research, are born into less secure private rented accommodation.
Royal London points out that it’s the first time in living memory that a child is at least as likely to be born into a rented property as into a home owned by its parents.
Back in 2003/04, the equivalent statistic was around one in three babies born into rented homes.
The insurer carried out this research by examining data from the Family Resources Survey. It forms part of their latest policy paper: “The Parent Rent Trap”.
This data suggests that families are renting from private landlords for longer, which results in financial, practical and emotional implications.
According to the data, there are now more than 1.5 million families in England with dependent children living in private rented accommodation.
Looking at the UK as a whole, there’s been a close to 100% rise in the number of families with dependent children who are living in rented accommodation.
This total has risen during the past decade from 940,000 in 2006/07 to 1.8 million in 2016/17.
Becky O’Connor, personal finance specialist at Royal London, said:
“Renting is no longer something carefree young people do for a few years while they save up a deposit to buy and settle down.
Renting is an increasingly long-term tenure and it’s increasingly impossible to escape from.
“For people in their late twenties and thirties, half of whom are starting families in insecure accommodation, not having a home of their own is
fraught with practical and emotional issues.
The main risk is eviction, which hangs threateningly in the background of normal family life.”
What does this trend mean for financial planning, and especially for retirement planning?
It used to be the case that the majority of people would reach their retirement with a home they owned and fully paid-off mortgage.
This would result in one less expense to worry about in later life, as well as an asset that could be used to fund long-term care or provide an inheritance for the next generation.
There’s nothing inherently wrong, in a financial sense, with a decision to rent rather than purchase a property.
For many, renting is the smart choice and can result in a great deal more flexibility, and access to living in parts of the country that would otherwise be unaffordable.
But the cost of continuing to rent in retirement needs to be factored into a Financial Plan, so it remains affordable.
The consequences of not having this valuable asset to fall back on in later life mean you need to build other assets, including cash savings and investments, to provide equivalent financial security.