Last week, housing and homelessness charity Shelter released its ‘rent trap’ report, highlighting the fact that average rents throughout England are rising by almost £300 a year. Consequently 58 per cent of renters are unable to put money aside to start saving for a downpayment on a house.
The release of this report supports the trends and figures we have seen on national housing tenure, namely the growth of the private rental sector and the decline of home ownership.
Given the recent spate of increased competition in the mortgage market leading to rates hitting record lows, this trend becomes even more alarming.
Under ordinary circumstances, such a combination of factors (high rents and low mortgage rates) would mean that potential buyers would be flocking to get on the property ladder.
However, in the current climate a lack of suitable mortgage products for those with limited deposits, coupled with conservative lending criteria means that many borrowers are struggling to get loans. Potential buyers are therefore finding themselves renting for longer than they would have intended whilst saving up for larger deposits, leading to the recent development of the ‘reluctant tenant’, also known as the ‘rent trap’.
In the UK, the average age of the first time buyer has risen to 35, and this is significantly higher in many areas. This coupled with the average age of the first time parent being 31, means that many renters across the country are young families with small children.
Due to the nature of the rental sector in the UK, and the flexibility that short term tenures offer, it is not uncommon for people to move property every couple of years; sometimes through their own choice and sometimes due to their landlord’s changing needs. This process can be highly disruptive to families, especially those with children, and one worrying side effect of ‘generation rent’ could well be an increase in family instability.
So with this in mind, what exactly can brokers do to help first time buyers realise their dream of homeownership?
The shape of the market, with homeownership in decline, will not change until confidence fully returns and mortgage finance becomes available again on ‘normal’ terms.
Restrictive borrowing conditions are a major issue for many renters seeking mortgages. Lenders are still very much looking to attract the ‘ideal’ borrower, with the majority of prospective buyers falling outside of this profile, and low risk lending becoming increasingly commoditised and overcrowded.
Having said that, several lenders have started to address this by developing innovative products that should help to service the wider first time buyer demographic and in turn, allow the housing market to shift towards a period of strong growth. Barclay’s Family Springboard is a great example of this, and we need to see other lenders think along the same lines in order for the housing market to grow in size as well as value.
Brokers need to make sure that borrowers are aware that while market conditions are tough there is hope for those willing to seek advice in the right places. We must do all we can to ensure that message comes across clearly and is not lost in doom and gloom.
There are positives out there. For example, this year we should see the benefits of the Government’s Funding for Lending Scheme. However, to ensure that the programme realises its full potential, it is paramount that lenders use this access to cheaper funds to benefit those higher up the risk curve, thus allowing more first time buyers to escape the ‘rent trap’ and the label, generation rent.
Ben Thompson is managing director of Legal & General Mortgage Club