Market

Will help for renters help get them on to the property ladder?

Legislation is being brought in to help those in rented property, but with rents rising fast along with the cost of living – is there much hope for first time buyers trying to get on the property ladder? Ginetta Vedrickas looks at the situation

COST OF LIVING RISES

Despite signs of recovery last year, 2022 has seen Brits’ wealth face a sharp decline as the cost-of-living crisis takes its toll, according to the latest data from the LifeSearch Health, Wealth & Happiness 2022 Index.

Compiled by modelling a range of data sources covering health, wealth, and happiness and monitoring changes over time, the survey shows that 2021’s combined annual index score was 84.4, a slight rise on 2020’s score of 81.5, but still 15% lower than 2019’s pre-pandemic score of 99.4 and showing that happiness is decreasing.

In the younger age group surveyed, of 18 to 34-year-olds, the study found that the economic crisis was a prime concern, with 25% saying that the rising cost of living has affected their mental health as well as dented their finances. Of those who had managed to get on to the property ladder, one in 25 (4%) has taken a mortgage holiday and one in 25 (4%) has defaulted on their mortgage. In total, 29% feel worse off than they did a year ago and 68% expect to be worse off by the end of the year thanks to inflation. For 8%, they have already put off big expenditure such as buying a house with common fears cited as rising bills, lack of savings and higher taxes.

MORE RIGHTS FOR RENTERS

There has been some good news for those worrying about spiralling rents. During the recent State Opening of Parliament, the Queen’s Speech introduced the Renters’ Reform Bill, which outlined several proposals to help those in the rented sector. Delivering the speech, Prince Charles spoke of proposed legislation which is intended to strengthen the rights of tenants and ensure better quality, safer homes. Rental campaigners welcomed the proposed abolition of Section 21 “no fault” evictions and the legislation which aims to provide a “fair and effective market” for both tenants and landlords with the proposal of a national landlord register, a new ombudsman, property portal and a requirement to meet the Government’s Decent Homes Standard.

RISING RENTS

Rents in the capital are notoriously high, but recent research from property portal Rightmove showed that national asking rents outside of London have also hit a new record, rising to £1,088 per calendar month. Average asking rents have risen from £982 per month over the last year, to take annual growth in asking rents outside London above 10% for the first time.

London rents have also reached a new high, rising by 14.3% in a year from £1,919 up to a new record of £2,193 per month, which Rightmove says is the “largest annual jump of any region” that the portal has ever recorded. Demand is growing for areas which have lower rents, while still being in commuting distance of the major cities for work or leisure. Manchester and Liverpool are two of this quarter’s top five rental price hotspots, with asking rents increasing by 19.3% and 17.1% respectively compared to this time last year.

Rightmove puts the increase down to the imbalance between high tenant demand and the low numbers of properties available

which continues to drive growth in asking rents. Across Great Britain, tenant demand is up by 6% and the number of available rental properties is 50% lower than this time a year ago.

This time last year, the number of available properties in London had risen by 19% compared to 2019, when London, the portal says, “temporarily fell out of favour with renters”. Now, demand is up by 81% and available rental properties are down by 47% in the capital compared to the more normal market of 2019. The portal believes that the result of this ongoing mismatch between tenant demand and the properties available to rent means that tenants looking for a new place to move to are being faced with the most competitive rental market that Rightmove has ever recorded.

MORE TENANTS MEAN THAT LANDLORDS CAN PICK AND CHOOSE

There are more than triple the number of tenants enquiring as there are rental properties available, meaning a high likelihood of landlords being able to choose between multiple suitable tenants. Despite the mismatch of tenants enquiring and rental properties available, there are some positive signs of more property choice in recent months according to Rightmove. In March, the number of new rental properties coming on to the market rose by 5% compared to January, and 16% compared to the shorter month of February.

RENTERS DENIED MORTGAGES

Many of those stuck in pricey, rented accommodation want to get on the property ladder, yet recent research shows that tenants are being denied mortgages despite never having missed any rental payments.

Research from Canopy, a platform which aims to help renters, found that 10% of private renters have been unsuccessful getting a mortgage, yet 80% of private renters have never missed a rental payment. Of those aspiring homeowners who haven’t been approved for a mortgage, a quarter, 25%, were rejected due to poor credit history, 24% didn’t have a big enough deposit, 15% had previously taken out a payday loan and 13% had too much debt. However, the private renters surveyed pay an average of £753 a month in rent and, with 80% of private renters never missing a rent payment, Canopy believes there is plenty of evidence that renters can keep up with mortgage payments, they just don’t have a record of this on their financial history.

When surveyed, 70% of private renters who have always paid their rent on time believe that their rent payments should count towards their credit score. Canopy believes that this would prove their affordability through the commitment they’ve shown to rent payments, as the average renter has been renting for nine years. However, 27% of private renters don’t know what their credit score is, providing a stumbling block when they come to apply for financial products.

LIFETIME DEPOSITS FOR RENTERS COULD HELP THEM SAVE FOR MORTGAGES

In order to improve renters’ financial position so that they can more easily save to buy their own home, Canopy has joined together with Fronted, a partnership which allows renters to move their deposit from one property to another during their rental journey, solving one of the biggest issues in a renters’ experience.

Up to this point, when moving between properties, renters typically have had to put down a new deposit before getting their old one back. On average, this amounts to finding £1,228 for a typical five-week deposit when an equivalent amount of money is tied up elsewhere. To qualify, all customers need is a deposit protected in one of the three deposit protection schemes. Once Fronted verifies an existing deposit, it pays the new deposit to the new landlord or agent on behalf of the renter. The old deposit after deductions is then returned to Fronted to cover the new deposit.

Chris Hutchinson, Canopy’s CEO, says the current cost-of-living crisis is making it an “incredibly tricky time for renters and aspiring homeowners”. He added, “Their day-to-day living is going up and saving spare cash at the end of each month for a future house deposit will feel like an impossible task, and quite frankly not a priority as they look to make ends meet.”

EXPERT COMMENT

Traditional deposits are a signi cant barrier to people becoming renters in the rst instance, and then a further barrier to renters moving home. Renters need to be tracking these rent payments so that they can improve their credit score throughout their renting journey and ultimately put themselves in the best position possible when they apply for a mortgage. Having an edge over the competition will prove invaluable. will prove invaluable.

Chris Hutchinson, CEO of Canopy

EXPERT COMMENT

While there may be a sense that after two long years the worst of the pandemic is behind us, the nation’s health, wealth and happiness is still not close to being back to levels seen preCovid. In fact, our happiness is at a record low, mental health issues remain high and the energy crisis, in ation and con ict in Ukraine point at another chapter of uncertainty. chapter of uncertainty.

Debbie Kennedy, Chief Executive Chief Executive at LifeSearch

EXPERT COMMENT

The Renters’ Reform Bill is a welcome – and much needed – piece of legislation for the market. With the road to property ownership still rocky, making sure that future properties are high quality, safe, and affordable is positive for both renters and landlords.

Emma Cox, MD of real estate at Shawbrook