Malone, 69, and due to retire at the end of next month, recalled how in 1985 an actuary told him how that by 2025 the government would have to admit it couldn’t afford the state pension.
He said: “What seemed like madness back then looks like wisdom now. I think a similar situation is brewing in the housing market – mortgages are harder to get than they were five years ago and house prices are still rocketing. The honest truth is that the number of people who will be able to afford to buy their own home in the future is going to drop dramatically.”
Figures from the Council of Mortgage Lenders show that 29 years ago the average amount borrowed on mortgage by the typical first time buyer was £17,950. Today it is £113,400. At the same rate of increase it would mean anyone born today would need £717,700 in 29 years time.
Malone said: “That seems unbelievable and it is completely unsustainable – house prices cannot keep going up like that without having a major social impact on the country and the personal wealth of those who own and those who can’t and won’t ever.
“That divide will be made worse by the fact that we are on average living much longer. If you were born in 1940 you’re expected to live to about 80. But those born just fifteen years later will live to an average age of 90.”
With mortality rates increasing more and more people are being forced to sell their homes to pay for long term care.
Recent research from NFU Mutual suggests one in seven Britons is clinging to the hope of inheriting property or cash from their parents to fund their own retirement.
But over a million homes have been sold in the past five years to fund care costs and more than two million elderly people have had to use their savings to fund care. And the growth, albeit small, in equity release shows no sign of abating.
Malone said: “The wealth that has in the past been left to younger generations is going to be eaten up by care costs.It’s important to think about just how many people are in this group – official statistics estimate that there will be 15 million pensioners by 2025 – that is a third of the working population.
“The taxpayer burden of paying a state pension to these people is getting bigger and bigger and at some point the government is going to have to admit it just cannot afford it.”
With more than 10 years of low interest rates damaging annuities, savings and the capital of those currently in retirement or about to retire it’s likely more people will be forced to use their homes to fund retirement.
And the growth in the number of people on zero hour contracts has also yet to hit home.
“How should lenders treat borrowers who don’t have full time employment? With the demise of self-cert and other similar products where people didn’t have to provide evidence of their annual earnings, there aren’t options for people in this kind of employment.
“The truth is that this hasn’t yet fully emerged as a real problem,” Malone added. “Regulation is demanding much tighter affordability calculations for every mortgage borrower and how can lenders assess someone’s affordability if they don’t know how much they will earn week to week? That’s going to contribute to the number of people who find they can’t get on the housing ladder too.
“If we accept that these trends will continue the North South divide is going to get wider and renting will have to be the default option for more people.
“There will also have to be some plan to pay for retirement for those unable to use property to fund their later lives.”
As one of the country’s biggest annuity providers Legal & General seems to have put plans in motion to offset this – it has already bought into Calla Homes and is working with several housing associations and Prudential and Aviva are rumoured to be following similar tracks.
While Malone conceded schemes like Help to Buy will boost the short-term mortgage market he said savers couldn’t be ignored forever.
“We are living in an ageing society and savers have had a raw deal for too long. At some point in the next three to five years we will see the government and Bank of England forced to think of their plight more seriously, otherwise they are making the future government retirement bill even higher and more unaffordable for everyone.”
