During a recent press conference, Prime Minister Boris Johnson commented that it was high time that Generation Rent changed to Generation Buy with the help of the mortgage guarantee scheme. But Sarah Coles, personal finance analyst at Hargreaves Lansdown, highlights that leaving Generation Rent has proven harder.
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What is Generation Rent?
Generation Rent constitutes a population of young adults aged 18 to 40 who cannot afford a property. Prime Minister Boris Johnson highlighted that most aspiring homeowners find it challenging to save the large deposit required when taking out a mortgage. For this reason, he saw it necessary to give a chance to young adults to access long-term fixed mortgages of up to 95% of the property’s value.
The mortgage guarantee scheme, which enabled lenders to offer 95% mortgages under government guarantee, came into effect in April 2021. Now, young adults don’t have to save large deposits – they only need 5% of the property’s value.
Why is leaving Generation Rent becoming harder?
House prices have continuously soared to a record high and, according to Sarah Coles, the average property cost at the end of 2020 was eight times the average income. This is an increase from 1961, where the average property cost was only four times average earnings.
Additionally, the rental market has changed. In the 1960s, rental properties were split roughly between the private and public sectors. However, in 2011, the private rental sector (15%) was bigger than the public rental sector (9%). Keep in mind that renting from the private sector is much more expensive than the public sector. Most renters spend an average of 32% of their income on rent, making it difficult to save enough to afford a home.
Sarah Coles also adds that there’s a psychological issue at play. Back in the 1960s, our parents were less likely to own, which lowered our expectations of homeownership. However, our parents are now more likely to own homes than us, so renting feels like a step backward.
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How do I get myself on the property ladder?
The first and most likely important step is to analyse your personal and financial situation to determine why you can’t afford a home or mortgage. It could be that your debt-to-income ratio is terrible, you have a bad credit score, you’re unable to save up the deposit required for a mortgage or your income is insufficient. This will help you see areas you need to improve to get yourself in a better position to afford a home.
The government has also introduced various incentives to help turn Generation Rent into Generation Buy. Taking advantage of these incentives could help you get on the property ladder quickly. As mentioned earlier, consider the mortgage guarantee scheme if saving a mortgage deposit is your problem. You could also look up a Lifetime ISA, where you can save £4,000 each year until the age of 50, and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
Visit the ownyourhome.gov.uk website for a full list of schemes you can seize. However, keep in mind that you need to meet a particular eligibility criteria to qualify.
