Homeowners The Next Generation: Unravelling the myths behind Generation Rent
As social and political hot potatoes go, the issue of housing and home ownership is a scorcher. Mortgage professionals are caught in the centre of the maelstrom as interested parties to the debate.
Key to the discussion is the future of home ownership itself. Last year the Office of National Statistics confirmed that home ownership had fallen for the first time in one hundred years, from a peak of 69% in 2001 to 64% in 2011.
In recent years, buy-to-let mortgages have been in the firing line, with critics attributing this decrease directly to the rise of the private landlord, helped out by this type of product. The argument is that house prices have been significantly driven up by competition from private landlords, purchasing properties with buy-to-let mortgages. In fact, figures issued by the Department for Communities in 2010 showed that 44% of landlords acquired their properties without any sort of mortgage at all.
It is apparent that multiple factors have contributed to the situation we now find ourselves in.
The desire to own one’s own home is entirely understandable, especially in light of the Halifax’s research that showed owning a house is now £108 a month cheaper on average than renting, including costs to repair and insure the property. However, in 2009 it was £37 cheaper a month to rent, so it is clear that this ratio is by no means stable.
This raises the issue that fellow buy-to-let commentators have broached previously; is buying the right choice for everyone? The answer is, obviously, no. We must not forget that we are still in a prolonged period of historically low interest rates, which undoubtedly skew these figures significantly. There is an extra level of uncertainty for home buyers as opposed to renters who potentially face increases in their monthly bills once these rates start to rise. Many will choose not to expose themselves to this sort of insecurity.
So, perhaps instead of focusing on increasing home ownership, we should have a broader emphasis on ensuring an adequate supply of good quality housing is accessible to our children when they finally leave the nest.
The obvious first step is to increase house-building but this is beyond the remit of lenders, brokers and servicers to directly influence; beyond lobbying for the cause whenever possible. However, what we can do, as we have done for many years, is to ensure that within the constraints placed upon us, people can rely on us to provide suitable mortgage products, tailored to their needs. This includes the availability of excellent buy-to-let products.
It is private landlords who are helping to ensure the increased availability of rental accommodation, without which many would be left with no other option than to remain in the family home. Buy-to-let mortgagees help fill the gap left by declining social housing provision and, in an environment of high-priced housing, provide a valuable stop-gap for those saving for a deposit for their first home. This is more important than ever in our post mortgage market review universe, where affordability checks are stringent.
Rather than shying away from buy-to-let products, as an industry we should strive for even higher standards in our underwriting and in the services we provide. There are many areas where potential landlords could benefit from the expertise of their finance providers, whether on a fee basis or not, and it may be valuable to identify where such potential lies.
Nor should we forget that many of those same private landlords will also have children themselves. By investing soundly they are ensuring that they will have the option of helping their offspring buy their own property when the time comes. Too often private landlords are discussed as if they are a different breed but most people will have at least one friend or family member who has invested in this way.
In the meantime, those wishing to own are likely to see a more favourable situation emerge for them in the future. The Office of National Statistics has announced that unemployment has fallen to 6% and, even more significantly, in September wages grew faster than inflation for the first time in five years. If this trend continues it will begin to narrow the ratio between house prices and income. In addition, house price increases are now showing some signs of slowing down, which will assist in this process.
Government schemes such as Help to Buy are ensuring that the amount of monthly approvals for first time buyers remains at pleasingly high levels. Research by MoneySuperMarket.com placed the average age of these purchasers at 36. It may be necessary to change the way in which we think about such matters, so that a period of renting before buying a house is seen as a natural progression, rather than as an unwanted delay. Maybe then we will realise that it’s not Generation Rent, it’s Generation Rent For Now.