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Is ‘Generation Buy’ Real?

Since the start of the Stamp Duty holiday in July 2020, it seems that every month brings with it new ‘record breaking’ averages for the UK property market. While this consistent growth has emphasised the resilience of this asset, it is slowly but surely making the property ladder more unaffordable for certain buyers.

Getting on the property ladder has been a challenging goal for first-time buyers over the last 20 years, with rising property prices across the country forcing many people to remain within the rental market. 

Now, with multiple incentives and financial opportunities being introduced to help first-time buyers make the leap into the property market, is the Conservative’s aim of turning ‘Generation Rent’ into ‘Generation Buy’ realistic?

What is Generation Buy?

The term Generation Buy was first introduced just ten months ago by the Prime Minister, following a spell of month-on-month increases in property prices and the growing reality of ‘Generation Rent’. While speaking at the 2020 Conservative Conference, ‘Generation Buy’ was outlined as the goal for the UK property market, with the hope of eventually making property affordable enough for Generation Rent to move into the market. 

Generation Rent is typically used to describe the young adults (18-40) who have found themselves anchored in the rental market due to the unaffordability of UK property. Statistics from the past three years have continued to reinforce the growth of Generation Rent, with up to 50% of this demographic likely to rent until their forties, while ⅓ of millennials (those aged 23-38) could remain in the rental market for their entire lives.

As well as anchoring more first-time buyers in the rental market for much longer, climbing prices and the financial responsibilities that come with owning a home have been gradually decreasing many tenants’ desires to get on the property ladder. As a result, just 30% of millennials are homeowners by the time they’re 30, while 50% of baby boomers had already secured their first property by the same age.

Over the years, the government has introduced several incentives and financial opportunities for first-time buyers in an attempt to make the property ladder more affordable. From the Help-to-Buy ISA to 95% mortgages, more efforts are being made to combat Generation Rent, but with the global pandemic only propelling the UK property market, the notion of Generation Buy continues to be unattainable for a large majority of the market. 

Home Ownership Rates

The Impacts of Covid-19

At the height of the global pandemic, the Stamp Duty holiday was introduced to sustain the property market, offering buyers the opportunity to save thousands of pounds on tax. While this tax incentive benefitted all buyers, from investors to first-time buyers, the overwhelming success of the holiday has only fuelled the unaffordability of purchasing property as a first-time buyer.

With the average property price across the UK now surpassing £300,000, research has found that first-time buyers are now paying up to £73,000 more to get onto the property ladder. According to BuildScan, the average first-time buyer was paying £207,068 for their first home in May 2020, almost £15,000 less than the average price they’re facing in 2021. 

Inevitably, these climbing prices have led to a considerable drop in the number of first-time buyers in the market, 13% less than last year’s figures. In addition to an inaccessible market, the majority of mortgage lenders have also increased their deposits, with most lenders now asking for between 10%-15% deposits as opposed to just 5%. 

Despite the government’s efforts to address mortgage issues for first-time buyers, and to ultimately, encourage the shift to Generation Buy, the ripple effects of Covid-19 have made homeownership a second thought for much of the younger demographic. Overall, the younger generation felt the effects of unemployment more harshly than any other age group, with the costs of renting being difficult for many, let alone saving for a deposit alongside this. 

While 30% of first-time buyers admitted saving for a deposit was a considerable barrier to buying a house in 2019, this has since jumped to 52%, highlighting the complexities in shifting Generation Rent to Generation Buy in today’s market. 

Generation Buy vs. Generation Rent

The government’s aims of turning Generation Rent to Generation Buy are ambitious, to say the least. Renting a property has long been considered a stepping stone between moving out of your family home and buying your first property, but as we have already seen, the ambition to own your own home is dissolving for a lot of first-time buyers. 

For many years, a key incentive for first-time buyers has been the financial benefits. In pre-Covid-19 times, monthly mortgage payments often worked out to be more affordable than renting a property, but since the onset of the global pandemic, this is no longer the case. The combination of rising property prices and higher loan-to-value mortgage rates has made buying a house more expensive than renting by 7% per month, even if the buyer has a 10% deposit.

With the Stamp Duty holiday deadline looming, the property market could begin to correct itself, but with forecasts anticipating strong prices for the remainder of 2021, it’s looking increasingly likely we’ll continue to see the steady growth present in the market for the last year.

While attractive mortgage rates and a larger selection of products will make the market more accessible for a lot of first-time buyers, the appeal of renting with younger generations can’t be understated. We’re still seeing a shift in sentiment towards renting, as more people value the flexibility and convenience it can provide. 

As younger people graduate, relocate to new cities and look to move out of their family homes, renting still represents a natural step before buying your first home. 

When combined with the ongoing regeneration of key UK cities and the rising standard of jobs in these top destinations, tenant demand for rental property throughout the UK is still forecast to reach new heights.

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