How can our children better afford a roof over their heads? by Kevin Gray CEO @BathBuildingSoc
Two worrying statistics have recently caught my attention. The first is a national figure that only 40% of young people can afford a mortgage that would allow them to buy the cheapest property in their area. The second is that the average monthly rent in the BA1 postcode for a onebedroom flat is £826, or 50% of the average take home pay for a 22-29 year old.
We are rapidly becoming a nation where property assets are increasingly being held by the old and where the young face the alternative of being forced to stay longer with mum and dad or getting fleeced by high market rents that ultimately prohibit them from ever saving enough to get a deposit together to buy their own homes.
The two problems arise from a supply side issue in the property market i.e. there is simply not enough property available to meet demand and hence prices (and subsequently rents) are being pushed ever higher. The ultimate long-term answer has got to be the building of more affordable homes to buy, and possibly even more importantly, the building of more homes that can deliver affordable rents. As someone who was brought up in a council house in Scotland, I appreciate that property ownership is not a necessity for making secure and happy family homes. As such, I welcome the government’s recent announcement that will allow local authorities to borrow more in order to finance the building of more homes to rent. This will eventually help to deliver an increase in the affordable housing stock, but even with the cash in place, new houses will not be created overnight. Suitable building land will need to be found and the slow and lumbering planning process will have to be gone through. It will all take time to deliver results.
A more curious initiative that is being talked about is the prospect of the government offering tax incentives to landlords to encourage them to sell their properties to their tenants who have been renting them for three or more years. Bearing in mind that a series of tax changes has been put in place in recent years to make Buy-To-Let less attractive as an investment proposition to property investors, offering a new tax incentive to landlords would seem slightly strange. In these stressed fi scal times, the logic in giving a tax incentive that does not result in any net increase in the housing stock could be debated.
The government’s Help-To-Buy scheme does offer cheap equity loans to make mortgage borrowing initially more affordable to first-timebuyers. It has now been taken up by over one hundred thousand borrowers. The scheme is available on new build housing, but it is questionable as to whether it has actually led to more construction taking place. The Treasury has allocated a total of £10bn to support its Help-To-Buy initiative and we are nearing that position. It is not known whether the scheme will again be extended or whether one of the very few mechanisms for getting young people into their own homes will soon fall away.
With current rents being so high, in some circumstances it can be cheaper monthly to pay mortgage payments than to rent. What our children really need are the means today to afford mortgages today. Bath Building Society has two such schemes in place. Firstly, for those children lucky enough to have parents who are able and willing to support them fi nancially on an ongoing basis, the Society will accept their parents as guarantors of their children’s mortgage payments. This has the effect of boosting children’s incomes and by doing so, increasing the amount that can be borrowed.
Secondly, the Society offers its innovative Rent-A-Room mortgage. This product makes mortgage loans more affordable as income from renting out a room to friends is taken into consideration when calculating how much a borrower can safely support.
Bath Building Society cannot cure the ills of the property market by itself, but we are determined to do our bit to help our young people own properties where they can make their homes.