Help To Buy Has Ended – What Does This Mean for BTL Investors?

Help to buy was a UK government scheme aiming to help first-time buyers step onto the property ladder. Announced in 2018, the scheme allowed users to put down a deposit as low as 5%. The scheme is no longer accepting new applicants, meaning beyond 2023 many young professionals will not be able to take a step onto the property ladder. Now prospective first-time buyers are considering their next steps, with many unable to take the next steps to acquire their first home.

Buy-to-let investors are noticing a rise in rental demand from young adults as a result. Landlords will usually look for suitable and secure tenants for their properties. As many aspiring first-time homeowners have saved cash or are in stable employment, they are fantastic tenants. Finding a good tenant is of utmost importance to make sure payments are met and the property is well maintained.

Impact on Investors

For investors, the help-to-buy scheme ending means an influx of renters, both long-term and short-term. According to the Homeowner Alliance, around 30% of the property sale demand in the UK was made up of first-time buyers. This demand from first buyers is now expected to take a significant hit. Many first-time buyers are in the demographic of Generation Rent, so it is safe to assume that any will turn to rental properties. This is while they continue to save for their first home.

Buy to let investors should not worry about the drop in property price demand. Although typically a drop in demand will cause a decline in property prices, however, the scheme only covered new build houses in specific areas. This means the wider market should be unaffected. There are still first-time sales that will close in 2023 and properties that are exclusive to investors were not available under the scheme.

Will There be an Increase in Quality Tenants?

Many of the potential first-time buyers who missed out on the help-to-buy scheme will be turning to rental properties. These tenants are likely to have cash, which was saved towards a deposit, which could act as a safety blanket when renting a property. Payments such as deposits, rental payments and utility bills are more likely to be met. This benefits landlords by securing their income stream. Typically, people who are ready to make their first property purchase are also looking to maintain their accommodation to a high standard, meaning less wear and tear.

The rise in rental demand will see an increase in rental prices, due to the supply-demand imbalance. This is particularly important for achieving higher yields, as rental prices begin to outweigh the property prices in the area. As many tenants look to reduce the cost of living they may look for properties on the commuter belt or close to city centres to reduce travel costs. In these areas, newly built buy-to-let properties are often available to investors.

Potential Drawbacks

While many first-time buyers who missed out on help to buy will initially turn to rental properties, they will be difficult to retain. While the stability of the renters will be good, the aspiration of getting their foot onto the property ladder will mean they are less likely to rent for multiple years. When signing a rental agreement, they are usually agreeing to stay in a property for a set term, but once that term ends, they are far more likely to move on.

Once help to buy ends it is unclear what the UK government will replace the scheme with. Currently, potential first-time buyers will have fewer options and affordability when getting onto the property ladder, but this could change. The UK government are keen to open up options to first-time buyers, hence why the scheme was first introduced. The introduction of a new scheme could have an impact on rental demand and cause the property to be vacant for a period of time. However, as rental demand has increased by 11% in 2022, vacant periods should be avoidable.

CityRise Verdict

CityRise offers property management services and when finding suitable tenants for a rental property we know the importance of a tenant’s financial stability. The rise in quality tenants is great news for buy-to-let investors as it keeps their investment secure and allows for a stress-free experience. The rise in rental demand should see continued growth in rental prices across the UK, increasing the return on investment.

While the tenants may be harder to retain, the short-term benefits outweigh this factor. Although unlikely, it is possible the tenants may extend their agreement beyond their initial term. The UK government could eventually announce a replacement scheme for help to buy in which case the additional rental demand could slow down, however as the rental demand was increasing significantly prior to the end of help to buy, the rental market is still very strong and stable.

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