Wage growth increase could make purchasing a property viable for renters

In this month's edition, we take a look at how an increase in wage growth could help renters wishing to get onto the property ladder.

There's also news on an extension in the Help to Buy scheme, we take a look at whether the 100% mortgage should be reintroduced and we've top tips to help renters moving out of their accomodation.

Wage growth increase could make purchasing a property viable for renters

Renting a home in Britain has become a necessity for many, in large part due to the difficulties that people face in getting started on the property ladder. Upfront deposits to secure property are at such a high level that many people are either forced to turn to their parents for financial aid or assistance or are excluded from searching for a home of their own altogether.

However, there might be some good news for ‘Generation Rent’, as it’s become commonly known. Wage growth has finally overtaken the rate of rental growth across all areas of the country, according to the latest Landbay Rental Index. Given that your average UK tenant (excluding London) pays out about a third of their pre-tax monthly salary on rent, this is great news for those renters looking to save for that first big deposit.

There has been a stark decrease in the number of people buying their first home in their 20s during the last decade, from 37% to 27%, and the total percentage of British residents renting currently sits at around 20% as of 2017, up 10% from 20 years ago. With that in mind, this increase in wage growth could have an impact on the property market in terms of the number of renters who could become potential buyers.

The figures suggest that rental growth for every region of the country excluding the capital has increased by 1.25%, averaging out at an increase of &120 each year, but with monthly gross pay increasing by &768 per year, tenants could be better off by a tidy sum of &648.

This is dependent on where you currently reside, of course. Given that London rents can eat up as much as half of the average monthly wage, it’s no surprise that London, the South East, East and South West are the most costly areas of the country for proportion of wages spent on rent. Each of these regions sit above the 30% recommended threshold, with those in London renting a one-bedroom flat paying almost half of their average salary to their landlord.

At the opposite end of the spectrum, you’ll spend a far lower proportion of your wages on rent if you’re located in the North East, Yorkshire or North West, although the former has seen the lowest earnings growth of any British region.

“Improved affordability is welcome news for renters,” offered Landbay’s CEO, John Goodall. “For tenants looking to save up for a house, the prospect of having more money in their pocket each month will help them get one step closer to owning their own home. Wage growth is continuing to improve across the UK so the outlook for tenants can only get better. Brokers can use this data to help clients to look for opportunities across the UK where higher wage growth will boost demand for properties.”

Read our tenant's guide to moving out of your rented property

Your tenancy has come to an end, and now you must juggle a series of different tasks before you can successfully leave the property. But don’t fret! Take a look at our guide to moving out for some handy tips to make the process a little less stressful:

Round off all your bills
Unpaid rent is the most common reason for tenants losing their deposit, so it’s a good idea to check with your landlord or property manager before you move to make sure you’ve paid the correct amount.

You should also give your energy suppliers plenty of notice before you move so that they can organise a final bill. Make a note of your meter reading on the final day for reference – this will prove useful, should you be billed an incorrect amount.

You could also consider having your mail re-directed to your new address and you should also inform any of your service providers such as TV, internet etc. that you will be moving to a new house.

Give the place a good thorough clean
Landlords will need the property to be ready for the next tenant, so there will likely be a clause in your contract that stipulates that you will need to clean every nook and cranny of the property before you move out. If the property isn’t spotless, you could lose some of your deposit to a cleaning bill.

Spruce up the garden
The garden will also need to be in the same condition as when you moved in. Pull up any weeds, mow the grass and dispose of any garden waste properly. If the gardening tools belong to the landlord, ensure you leave them behind for the next tenant.

Thoroughly check the property for a final time…
Moving out of your rental property is a different proposition to moving out of your parent’s house or a property you may have owned. For the duration of your tenancy, you have essentially played the part of guest and caretaker of someone else’s property, so a good deal of the process will be focused on the condition of the property when you moved in vs when you left it.

To help avoid any issues, it’s a good idea to do a walkthrough of the property and compare it to the condition report and/or any pictures you or the lettings agent might have taken before the move. It’s also a good idea to take new images before you leave.

… and review the inventory
The inventory you received at the beginning of your tenancy will detail any items that the landlord had in the property, for example, gardening tools, small items of furniture, kitchen appliances etc. You will need to check that all these items are still in the property and that they’re all in working order, or you might face losing a portion of your deposit.

Should the 100% mortgage be reintroduced?

A recent poll from YouGov suggests that almost half of the United Kingdom think that the re-introduction of the 100% mortgage is a good idea. A total of 9,713 people were included in the government survey and participants were asked whether borrowing the entire cost of a home is either a ‘good idea’, ‘bad idea’ or ‘unsure’. Almost half of those surveyed, 48%, stated that the reintroduction would be a ‘good idea’ and almost a third regarded the borrowing as a ‘bad idea’ – showing that there is some consternation around the subject.

Currently, a total of nine lenders offer a 100% (or ‘loan-to-value’) mortgage. However, there are conditions around the borrowing option in its current format. In order to apply for a 100% mortgage, and depending on the mortgage provider, you must either have a guarantor who has a property to act as collateral against the mortgage or you will have a ringfenced amount of savings which can act as security (essentially making it an offset mortgage).

The suggestion to reintroduce the 100% mortgage would circumvent the necessity for guarantors or separate security accounts and could therefore help those who are struggling to take that first step on to the property ladder. Legal & General Mortgage Club head of lender relationships Danny Belton disputes whether the reintroduction of this type of lending would be beneficial, however, stating “the thinking and rationale behind the return of 100% LTV mortgage is interesting, but this is not the solution to the current issues facing first time buyers.”

Belton continues to critique the 100% mortgage, offering: “At the very least it would mean lenders would have to significantly increase the amount of capital they would be required to hold, which is just not sustainable. What would be more beneficial is for more buyers to utilise schemes such as shared ownership and Help to Buy, or even make use of a guarantor mortgage.”

In terms of age groups, the poll returned some interesting results, with 46% of those aged 18 to 24 responding positively to the proposition, compared to 49% of those aged 65 and over considering it a poor idea. The disparity in the age groups could be linked to the differences in the stages of property ownership; there are the younger survey participants that are keen to get on the property market and are therefore more responsive, whilst the older participants have a higher likelihood of already owning a property and are thus more circumspect when faced with new propositions, such as the 100% mortgage.

Although the initial prospect of a mortgage for the full value of a property may appeal to potential buyers struggling to get on to the property market, the realities of living with such debt and the inflexibilities around it could dissuade the majority. The YouGov survey clearly demonstrates that younger people are keen to buy property and hence any new prospects which may help them in this endeavour will be well-received.

However, as Danny Belton has stated, there are several alternatives available to help people onto the property market. Those considering the 100% mortgage to be a good prospect should look into shared ownership schemes and Help to Buy before plunging into the loan-to-value option, no matter how attractive the prospect may appear on first glance.

Want to use Help to Buy? Good news: the scheme has been extended

The Government’s Help to Buy scheme has been extremely successful, with a duality in its accomplishments; firstly, in encouraging people to take a step on to the property ladder and secondly, in encouraging housebuilders to develop new homes in the knowledge that they have a government-backed safety net of potential buyers, just waiting to purchase their newly-built homes. With the news from the recent Budget that the scheme which is due to end in April 2021 will be extended, albeit in a new format, by two years prospective buyers should be buoyed by the government decision.

Help to Buy will have been in existence for a decade by the time the extended period finishes and is available to first-time buyers as well as current homeowners looking to trade up on the property ladder. Essentially, the scheme provides a government-backed loan to people who want to buy a new home but cannot afford the deposit. For developments participating in the scheme, you only need a 5% deposit (ie. &10,000 for a home worth &200,000) and the government then lends 20% of the cost (topping up the deposit), with the remaining 75% consisting of a mortgage. The 20% loan from the government is also exempt from fees for the first five years of the scheme.

The extra two years of Help to Buy will be available to first-time buyers throughout the UK for houses worth up to a new regional price cap, rather than the current scheme’s cap of &600,000. As well as new regionalised limits for the equity loan, the scheme will solely be available to first-time buyers whereas currently, you do not have to be new to the property market in order to buy through the scheme – a fact which very few are aware of.

The scheme in its current guise has helped more than 300,000 people purchase a property, all of which have been new-build homes. It is this interaction between buyers and new-build homes which has helped to answer the ever-increasing demand for properties across the UK, and with the scheme forecast to end in 2023, there will surely be an impact upon the ready availability of new homes from this point onwards.

Housebuilders have had the luxury of a steady supply of buyers ready to purchase through Help to Buy who otherwise would not have been able to purchase their properties, and after 2023 there is the real possibility of a slowdown in new building projects due to the cessation of Help to Buy. Companies such as Barratt, Taylor Wimpey and Persimmon have reaped the rewards of the scheme since its introduction in 2013 with around 40% to 50% of their sales from Help to Buy homes.

For five years, potential homebuyers have been able to purchase properties which would otherwise have been outside their price range – and for first-time buyers, in particular, this has allowed a first foray into property ownership. The announcement of an extension to the length of this scheme should, therefore, encourage potential buyers to take the plunge, and allow building firms to continue to reap the rewards of a particularly lucrative sector of the property market.