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Generation rent, you will have heard this term creeping up a lot more across the market. Generation rent is a segment of the property market that continues to grow. But what is causing this growth?
Essentially, these people have been driven out of the housing market due to inflating property prices and the rising cost of living. Over the decade, property prices have grown faster than the rate of inflation, proving that the property market is robust. Therefore, those looking to invest in buy-to-let properties should act quickly.
The Difficulties Faced by Generation Rent
Generation rent faces many financial difficulties, ranging from intensifying living costs coupled with slow wage growth. The concept of ENDIES, ‘employed with no disposable income’, is becoming more prominent. Wages in the UK have not kept up with the rising costs. So, it is taking much longer for some first-time buyers to save up for a deposit.
In comparison to previous generations, the number of young homeowners is dropping. There are now a larger number of 18-40-year-olds in the market who are renting because they cannot afford a home. Nevertheless, a high percentage of income is still spent on rent as rental prices continue to climb.
A few factors are limiting financial flexibility:
First-Time Buyers Pushed to Renting
Interest rates are at some of the lowest levels in history. Therefore, buyers can get a better rate on their mortgages. This drop has enhanced the desirability of buying a property rather than renting. As a result, activity in the buy-to-let market has spiked. This increasing competition has had a positive influence on property prices. Although inflating prices will not help first-time buyers, they will benefit current landlords and buy-to-let investors.
Nonetheless, these inflating property prices mean buyers will need a much larger deposit to secure the property. Therefore, it is becoming increasingly difficult for first-time buyers to climb the ever-growing property ladder.
The furlough scheme introduced by the government escaped a rise in unemployment, which ultimately avoided a house price crash. The latest statistics indicate that nearly half of millennials will continue to rent into their forties. Furthermore, a third of these people may continue to rent beyond that.
The supply and demand imbalance lingers. The government repeatedly states the need to build more homes to tackle the chronic shortage of homes across the UK. However, this has been unsuccessful as the supply and demand imbalance worsens. In 1958, 7.5 million homes were built, over three decades. But this figure has plunged drastically in the recent three decades. The number of new homes constructed has halved, dropping to just 3.1 million. There are several factors affecting the number of houses built:
On the contrary, levels of increasing demand are a result of:
Previous generations saw renting as a stepping-stone to fill the gap whilst saving a deposit and securing a mortgage for a home. Traditionally, buying a home was a priority over renting. As renting was only seen as a temporary solution. Once a short-term solution, renting is now the more desirable option for the younger population. The market conditions have changed drastically. Currently, over 50% of those renting are under 35.
Generation Rent continues to grow as first-time buyers struggle to climb the property ladder. Despite government efforts to aid first-time buyers in home ownership, in the last two decades, there has been a 10% drop in owner-occupiers aged 25-34. The Help to Buy scheme was designed to help people secure property and achieve their goals of becoming homeowners.
Will Generation Rent Continue to Expand
In my opinion, Generation Rent is here to stay for the foreseeable. Especially as mortgage lending becomes stricter and property prices inflate. The housing ladder seems to be getting longer for first-time buyers. Renting is a more affordable option for some. Naturally, the population, as well as life expectancy, will continue to increase. As a result, demand for properties will heighten. Therefore, a larger number of tenants will enter the rental market, which will no doubt be profitable for buy-to-let landlords.
The Help to Buy scheme, the Stamp Duty holiday, and the lowest interest rates have primed the property market. Especially at the start of the pandemic. Mortgage approvals were at an all-time high, and demand for properties skyrocketed. If you are looking to secure a buy-to-let investment, we can assure you, that you will benefit from high rental demand because we predict the pool of tenants will continue to expand. As a landlord, you will also benefit from increasing rent.
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