The housing crisis and generation rent

In towns and cities where accommodation is expensive, what can employers do to help their staff live close to where they want to work?

A new study by The Resolution Foundation, Home Improvements, has found up to half of UK adults are renting into their forties and a third will still be renting when they claim their pensions.

Jonathan Stephens, MD at property investment company, Surrenden Invest, says: “The figure is really shocking because if people haven't been able to buy property by their mid-forties, they might not ever be able to buy.

What are the issues?

The failure of successive governments to reach housebuilding targets means demand has outstripped supply for many years. Knight Frank's latest annual housebuilding report found just 1% of property developers think the government's target of 300,000 new homes annually is achievable by 2022.

Between 1995 and 2008, house prices boomed but wage increases failed to keep up. The financial crisis led to interest rates being cut in March 2009 to protect homeowners and keep mortgage costs down. The knock-on effect is that this helped maintain high house prices.

Meanwhile, the regulator launched a mortgage market review, making it harder for customers to get a mortgage because lenders tightened lending criteria.

Historically, lenders would offer a mortgage at four times the customer's annual income, but as wages stalled and house prices accelerated, it wasn't enough to buy a property in many parts of the UK.

The rental option

These figures show why so many people are part of 'generation rent', but how does the rental option fare for them?
Analysis of Office for National Statistics data by the Financial Times found the rent-to-income ratio has risen rapidly between 1986 and 2016, from roughly 10% to over 25%, meaning tenants spend more on rent, adding to their difficulty in saving a deposit to buy their own property.

“Corporate support for young renters is currently much more popular on the continent and it's yet to take off to any great extent here in the UK”
James Davis, CEO, Upad

What's more, initiatives designed to help first-time buyers have faced opposition, with Help to Buy blamed for artificially propping up house prices and the government's stamp duty exemption criticised for making little difference in the overheated London market.

What schemes are available?

Help-to-Buy equity loan A deposit of 5% will allow buyers to receive a government five-year interest-free loan of 20%, which is repayable when they sell their home or at the end of the 25-year mortgage term. Although the vast majority of applicants are first-time buyers, the loan is available to people who have previously owned a home. However, it's only available on new-build properties.

Help to Buy ISA helps boost first-time buyers' saving pots. For every £200 saved, the government adds £50. The maximum bonus is £3,000 for £12,000 saved; the minimum bonus is £400 for £1,600 saved. However, this ISA bonus can't be used as a deposit: the tax-free lump sum must be paid to the mortgage lender on completion in order to reduce monthly payments.

Right to Buy is aimed at council house tenants with at least three years consecutive tenancy so they can buy their home at a discount.

Shared Ownership schemes allow people to buy a share of a property, usually between 25% and 75%, from a local housing association and pay affordable rent on the remainder. Further shares can be bought as and when they can afford it.

Lifetime ISA offers a tax-free boost of up to £1,000 per year towards buying a first home. The government pays 25p for every £1 saved. First-timer buyers under 40 can opt to use the ISA as a deposit on a property worth up to £450,000 anywhere in the UK.

Starter Homes is a new scheme available to buyers aged 23 - 40 who have never owned a home. The planned 200,000 new homes built under the scheme will be sold at a minimum of 20% below the asking price. The first completions are set to be made this year.

How can employers help?

In lieu of higher salaries, which would best benefit staff trying to save a deposit, some businesses are trying to help cut the cost of renting. This will also go some way towards helping employees boost their savings.

Dozens of London businesses have joined the Fifty Thousand Homes campaign, which aims to help employees with financial support such as commuting costs or tenancy deposit schemes.

In May 2017, publishing group Hachette partnered with the Book Trade Charity to offer trainees rental properties in North London at below market rates. This followed an initiative by fellow publisher Penguin Random House that offered people on work placements subsidised accommodation.

However, James Davis, a private landlord and CEO of online letting agency Upad, says: “Corporate support for young renters is currently much more popular on the continent and it's yet to take off to any great extent here in the UK.”

Meanwhile, chartered surveyor Gerald Eve and the Co-operative Group are both members of the government-backed rental deposit loan scheme, which offers workers an interest-free loan to pay for a deposit on a rented home.

Chris Sonne, training and communications manager at the Co-op, says: “The scheme is open to colleagues who have been with the Co-op for over 13 weeks. More than 350 have used the scheme since 2015.”

Lois McClure, 24, studio delivery co-ordinator at the Co-op, is part of the scheme and believes other employers should offer it because “it allows people to work and live where they want, attracts potential employees and the business gets the money back”. 

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