The mortgage market could go into a sharp long-term decline as elderly people pay off their home loans while younger people struggle to get on the property ladder.
The number of people with a mortgage has already plunged from 10 million in 2001 to eight million last year.
By 2025 it will have fallen even further to 7.2 million, according to a new report by accountants PriceWaterhouseCoopers.
More than one in three homes will be owned outright within a decade as baby boomers clear their mortgages.
By then more than 10 million families will be living mortgage free, up from 8.4 million today. Most will be in their 60s and 70s.
At the same time, millions of younger people will never get on the property ladder and be forced to rent privately.
The report said that it will increasingly be the norm for people in their 20s and 30s to accept that they will rent for the rest of their lives.
The number of households renting privately has more than doubled since 2001 and will increase by 1.8 million to 7.8 million by 2025.
Richard Snook, senior economist at PwC, said: “Driven by a decade of soaring house prices pre-crisis and lower loan-to-value ratios post-crisis, the deposits needed by first-time buyers have risen significantly.
“As a result, a generation of private renters have emerged and this will increasingly be the norm for the 20-39 age group.”
PWC predicts that the proportion of owner occupiers will fall to 60% by 2025, down from around 70% a decade ago.
Snook said: “The long rise in the UK owner-occupation rate in the post-war years seems to have gone into reverse.”
PWC forecasts that house prices will rise by up to 7.4% between 2017 and 2020, taking the average home above £400,000 for the first time.
The need for larger deposits will further squeeze first-time buyers.