May 20, 2013 |
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According to research from Rightmove, nearly 40% of tenants who would like to buy their own home but can’t afford to – what they call ‘trapped renters’ – could be able to do so following the implementation of the 95% Help to Buy scheme in January 2014.
The survey of 3,214 tenants found that 39% don’t think they will ever get a foot on the housing ladder without a stroke of luck. Rightmove suggests that the £3.5 billion Help to Buy scheme – which provides loans of up to 20% of new build properties worth less than £600,000 to people with just 5% deposits – could be just that.
When tenants were asked to evaluate their deposit saving efforts, it was found that 42% of ‘trapped renters’ are actively setting aside money for a deposit, but just one in twelve (8%) of these current savers are on course to meet their deposit target. Four in ten said they could only set aside a small amount each month, but would get there in the end. Almost as many (39%) said that as they were unable to save enough, they would ‘need a windfall’ in order to reach their goal. The majority of tenants have not yet begun to save.
High rents eating into tenants’ take-home pay is the simple explanation for why this is the case. The average tenant spends 37% of take-home pay on rent, while rent accounts for 50% of take-home pay for just over a quarter (27%) of tenants.
The survey shows that nearly six in ten (58%) current tenants feel ‘trapped’ into a life of rent. Of the minority of tenants able to save for a deposit, the average savings represent just 11% of take-home pay.
One-third of all ‘trapped’ renters said that getting on the housing ladder is a priority.
Rightmove director Miles Shipside said, “Demanding deposit hurdles have made the transition from tenant to first-time buyer challenging for many in recent years. “Those who expect to make that move this year tell us that they’ve been working towards a deposit goal of £20,000, rising to £30,000 for those in London – figures that must seem daunting to even the most frugal tenant.
“Even for those who’ve been diligently saving, many are still left hoping that their lottery numbers come up or the Bank of Mum and Dad proves less picky with its lending than the High Street banks.
“However, the Government’s proposed new Help to Buy scheme could yet prove to be a ‘virtual windfall’ by lowering the deposit hurdle to 5%, providing much-needed assistance and motivation for Generation Rent.”
But the scheme isn’t going to help everyone; it excludes people over the age of 65. For this reason, McCarthy and Stone, the UK’s largest provider of retirement housing, has written a letter of complaint to the Communities and Local Government department.
McCarthy and Stone’s letter to the CLG said, “Once again, retirement housing and older people have been excluded from a key government initiative.”
Although the scheme is technically open to anyone, guidance documents published by the government stipulate that all purchasers under Help to Buy must apply for a mortgage. McCarthy and Stone argue that because mortgage lenders discriminate against older people out of fear that they will die before their debt is repaid, the scheme effectively excludes those past working age.
They claim that the scheme will not help older people who either don’t need to obtain a mortgage because they have sufficient equity in their home, or are unable to borrow because of their age, but are unable to buy a new, more appropriate home without support.
They would like to see the scheme amended to allow purchasers of retirement properties to apply for an equity loan without the need for a mortgage. They believe this would allow older people to downsize, reducing the impact on health and social care budgets, while also freeing up larger family housing.
However, Paul Teverson, head of public affairs and public relations at McCarthy and Stone, said the CLG is ‘not minded to amend the scheme’.