Last October, Boris Johnson vowed to pave the way for ‘generation rent’ to become a generation of first-time buyers. 

The Prime Minister took a strong stance. He called the plummeting rates of owner-occupation for those under 40 a ‘disgrace’. Condemning how it’s left millions to pay copious amounts for a home they can never ‘truly make their own.’ 

To combat this, Mr Johnson promised policies that’ll help create 2 million more homeowners in the UK. The most significant homeownership expansion since Thatcher’s days in the 1980s. 

But where does this leave the rental market? Not only has the government’s plans boosted confidence in the housing sector, but their words have left a stain on what it means to rent—and both will have an impact.

Here’s what HomeHero thinks…

The policies in place

During the pandemic, the mortgage lending market remained resilient. In October 2020, the number of mortgage approvals sat at 97,500. This is a significant increase from the number of authorisations the year before. 

But the pandemic has left consumers who cannot afford deposits of over 10% in the lurch. The combination of redundancies, furlough and unemployment, has heavily restricted access to mortgage products, and the government wants to combat it. 

So, how will the government help millions of young renters who’ve been priced out of the housing market? Well, there’s the Mortgage Guarantee Scheme, the Help to Buy Equity Loan and the extension to the Stamp Duty Holiday. All of these were unveiled in the March budget.

The Mortgage Guarantee Scheme

The Mortgage Guarantee Scheme, designed to help buyers with small deposits to get a mortgage on properties worth up to £600k, works similarly to 2016’s Help to Buy scheme. The policy began on the 19th of April 2021 and is set to end in December 2022. 

Both first-time buyers and homeowners seeking to move up the property ladder are eligible for the scheme, and they only need to put down a 5% deposit. Lenders also must offer a more affordable, five-year fixed rate deal. This is so buyers have the security of predictable repayments in the future. 

Help to Buy Equity Loan

The latest version of the Help to Buy equity loan helps first-time buyers who have a 5% deposit purchase a newly-built home—but it must be from a registered home builder approved by the scheme. 

The amount you borrow ranges from 5% to 20% of a new build’s total purchase price. If you’re buying a property in London, the government will lend you up to 40% of the property price. So, with a 5% deposit thrown in, a first-time buyer would only need a mortgage of 55% of the property’s value. 

However, there is a regional price cap for properties eligible for this scheme. For example, properties in the North East will have a limit of £186,100. In the South East, this number sits at £437,600 and in London, it’s £600,000. The scheme began in April 2021 and will end in March 2023.

What does the market look like now?

These policies, along with the stamp duty holiday extension, have undoubtedly boomed the housing market. The UK’s average house prices reached record levels of £254,606 in March—a 1.1% jump month-on-month and marked the first rise since November 2020. 

Halifax’s House Price Index also found that property values were up by £15,430 (6.5%) in March compared to the start of the pandemic. In Q1 2021, house prices were 0.3% higher than in the previous three months, and there was a 6.5% annual change. 

Data from HMRC’s monthly property transactions also highlighted a record-breaking increase in UK home sales in February. These figures have led Russell Galley, Managing Director at Halifax, to commend the government for putting faith back into the sector. 

“The continuation of government support measures has been key in boosting confidence in the housing market”, he says. “Overall, we expect elevated levels of activity to be maintained in the coming months, thanks to consumer confidence spurred on by the successful vaccine rollout.” 

Galley also pays homage to the changing trends around housing. “Buyer demand will be fuelled by a desire for larger properties and more outdoor space, as work-life priorities have shifted during the pandemic.”

A double-edged sword

But is it really all sunshine and roses? While the government’s efforts have undoubtedly helped the housing sector, they’ve also come under intense scrutiny by giving rise to a two-track market. 

Since the Mortgage Guarantee Scheme is not limited to first-time buyers and houses worth up to £600k are eligible, some fear that all it’ll do is further inflate prices.

This is something we’ve seen before. Back in 2015, then Prime Minister David Cameron introduced a similar Help to Buy mortgage guarantee scheme. This was after the 2008 financial crash to help those on low incomes enter the market. 

But these measures follow a similar pattern of helping first-time buyers keep up with rising prices instead of tackling affordability. As it happens, over 1 in 20 recipients of Help to Buy fell into arrears as of November 2019, according to government figures. 

Is ‘Help to Buy’ more like ‘Help to Sell’? 

Where does this leave the rental market?

So, while the government’s policies attract people out of the rental market, they’re also a far cry from eradicating generation rent. History indeed repeats itself. 

But for the rental market, these changes will come as a blow. Echoing back to what Boris Johnson said in his October speech, it can be difficult for tenants to feel truly at home in your standard rental. So, private landlords will have to do more to attract and retain tenants. 

We’re talking about investing in high-quality appliances, charging fair rates and rethinking how they can make tenants feel more at home. Things like letting them paint the walls or hang pictures up, for example. 

But it’s true; the pandemic has caused people to rethink their priorities, there’s been a big shift in renter expectations in 2021.. Tenants want more space, they’re fleeing the cities, and many are unsure about committing to debt in such difficult times. This is where build-to-rent developments come in. 

Build-to-rent is the future.

According to the British Property Federation, the number of completed BtR homes in Q4 2020 stood at 53,750. In Q3, investors put £1.84bn into the sector, and every region showed positive growth in future BtR supply. 

This is because BtR homes are becoming desirable options for young professionals, downsizers and families. They remove any debt and maintenance stressors, leaving tenants to enjoy fantastic amenities such as gyms, pools, and resident lounges. 

As a result, we see a significant demand for high-quality rental stock in regional towns, cities, and convenient commuter zones locations. Build-to-rent developments provide a luxury that many people crave and minimise day-to-day hassles. 

Both investors and tenants can see their value. Many people will opt to rent in these developments for their amenities and no big strings attached. While the government supports first-time buyers, the rental market continues to think of how to keep the UK’s generation of renters where they are—not through an exploitative trap but as a lifestyle choice.

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