First-time Buyer  

What advisers need to know about Generation Rent and protection

  • Identify the changes in the BTL market which were intended to help first-time buyers.
  • Describe what impact fewer homeowners means for protection needs and advisers who sell protection.
  • List why tenants or Generation Rent represent a potential income for advisers as clients.
What advisers need to know about Generation Rent and protection

Despite government efforts to reduce the attractiveness of buy-to-let (BTL) property and bolster first-time buyers, more people than ever are renting. 

The latest English Housing Survey by the Office for National Statistics (ONS) shows home owners account for under two thirds (63 per cent) of all households – effectively unchanged from the year before, a 30-year low. That’s down from a peak of 71 per cent in 2003.

Among the young, this collapse in home ownership has been even more striking. Little more than a quarter of 25 to 34-year-old middle income earners now own their home, according to the Institute of Fiscal Studies, against 65 per cent just two decades ago. 

The government is clear about the problem. Prime Minister Theresa May said in a speech earlier this year: “In much of the country, housing is so unaffordable that millions of people who would reasonably expect to buy their own home are unable to do so.”

“The result is a vicious circle from which most people can only escape with help from the Bank of Mum and Dad. If you’re not lucky enough to have such support, the door to home ownership is all too often locked and barred,” she added.

These words ring strikingly true. Legal & General’s own Bank of Mum and Dad research shows that more than a quarter of those who were able to buy a home received help from friends or family.

But diagnosing the problem is much easier than fixing it.

A changing of the guard

On the one hand, the efforts to “rebalance” the market in favour of first-time buyers from landlords have been substantial. Changes in the past couple of years have seen stamp duty scrapped for first-time buyers and a 3 per cent stamp duty surcharge for those buying second homes.

Mortgage interest tax relief for buy-to-let has been slashed, while 170,000 homes have now been bought through the government’s Help to Buy scheme – four out of five by first-time buyers .

But the key problem – affordability – remains.

Full-time workers in England and Wales could expect to pay 7.8 times their annual earnings to purchase a home in 2017, according to the latest ONS figures.

An average single first-time buyer in London may have to save for the best part of two decades to buy, according to estate agents Hamptons.

Tax changes and stricter lending criteria mean that many buy-to-let and accidental landlords inheriting property or failing to sell their home when moving, are selling up.

Persistent affordability problems, however, mean that buyers are as likely to be professional landlords as those getting their first foot on the housing ladder.

As early as January 2017, the Council for Mortgage Lenders estimated that while over 60 per cent of landlords let out just a single property, the 7 per cent owning five or more accounted for 40 per cent of all rented dwellings.