Last year, the treasury introduced a variety of measures that were intended to aid first-time buyers onto the property ladder in one of the most turbulent economic climates during peacetime. However, as well-meaning as these measures were, they seemed to have had the opposite effect.
The measures, which included the stamp duty holiday and the re-introduction of 95% mortgages caused a huge surge in demand when it was introduced in July 2020, and this demand doesn’t seem to be going anywhere, nearly a year after it was announced. In the latest house price index by Halifax, it was found that UK house prices increased by a staggering 9.5% in the year to May 2021, which is the highest they have been in seven years. The stamp duty holiday caused an increase in competition within the market, which was largely driven by home movers who often priced first-time buyers out of the market.
It wasn’t just the surging house prices and competition that was causing hurdles for first-time buyers. The pandemic has had a huge impact on people’s finances with larges parts of the economy being forced to close down. In a survey carried out by the high street lender Santander, it was found that younger buyers were feeling the financial impact of the pandemic and therefore struggled to save up for a deposit or they had to use the money that they saved up for a deposit on other unexpected financial commitments. In their research where they surveyed 12,000 adults, Santander found that 31 per cent of buyer types had saved more money during the pandemic. However, when it came to first-time buyers, only 17 per cent were able to save up throughout the lockdown. There was also the issue of lenders limiting their lending criteria during the lockdown, and many first-time buyers had their mortgage application declined because their deposit wasn’t high enough or they didn’t meet the affordability criteria, particularly if they were a furloughed employee or self-employed. While these measures have loosened slightly, the pandemic is still causing a lot of financial uncertainty for many people throughout the country.
It also appears that buying might not be the best option for a lot of people at the moment – according to recent research by the estate agent Hamptons International, it was found that for the first time in six years, renting was in fact cheaper than buying on a month-by-month basis. According to the study, which was carried out in May, renters spent a monthly average of £1,054 on rent compared to first-time buyers who spends a monthly average of £1,125 on mortgage repayments when they have put down a 10% deposit. This was a stark contrast to the data that was produced from the same data in 2020 before the pandemic, where it was revealed that on average, buyers would have been £102 a month better off compared to renters. There are now only four regions in the UK where it is cheaper to buy than rent and they are the North West, Yorkshire and the Humber, and Scotland.
It is clear that the rental market is crucial at the moment and as the market continues to be in a frenzy for the foreseeable future, more would-be first-time buyers are seeing the benefit of renting their homes instead of buying. And since there is already a huge pressure on the country’s rental supply, it is a good time for investors to expand their portfolio and provide much-needed homes in the private rented sector.