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How we continue to help ‘Generation Rent’ become ‘Generation Buy’
Few in our sector will have failed to notice the government’s recent proposals which focus on the mortgage and housing markets.
Notably, they proposed a Right to Buy for social housing tenants and ‘Benefits for Bricks’ for working individuals who claim housing benefit, and may be able to use that benefit to pay for a mortgage instead of rent.
This will be an interesting one for lenders to get their collective heads around, although of course many (including Foundation) already accept a percentage of housing benefit as part of a borrower’s assessed income. For these potential borrowers, it is usually the raising of the deposit which is the challenge, so it will be interesting to see how this is overcome by the government and mortgage industry innovation.
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Interestingly, the research from the Department for Levelling Up, Housing & Communities (DLUHC) which analysed the 2019-20 English Housing Survey, segmented private renters into six groups.
By far the largest of these groups was the ‘Comfortable Renters’ who make up 44% of the private rental sector, approximately 1.94m households. They have few financial or other limitations on choice of housing; they are unlikely to have low income; relatively unlikely to have children or be in ill-health; most likely to have savings; least likely to have difficult paying the rent and 36% of them expect to move out of the PRS by buying their own home within the next two years.
It’s understandable why there are Government calls for payment of rent to be considered by lenders when assessing their ability to afford the mortgage, but there remains also the much wider criteria requirements of whether lenders can accept mixed PAYE and self-employed income; how much commission they’ll take into account, how long a person has been in employment or self-employed or contracting, and how many years’ accounts they have available, amongst a myriad of other variables. It is here that the manual underwriting of specialist lenders comes to the fore.
Blog: How we are turning 'Generation Rent into Generation Buy
For the ‘Comfortable Renters’, the research shows, many want to do this within the next two years, and advisers now have access to mortgages which can smooth that path from the PRS to owner-occupation for them.
And for the borrowers hoping to exchange their benefits for bricks, brokers can support them by working with lenders who accept gifted deposits from a wider range of family members, and also accept benefit income for affordability.
We should certainly not underestimate the role the PRS plays, and how important landlords are in supplying these homes, and neither should we disregard the urge to buy a home when that time comes. Luckily, there are lenders such as Foundation that cater for both sides of the coin and the ability to both rent and buy is something that we should not take lightly or for granted.
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Mark Whitear is Director of Commercial Development at Foundation Home Loans
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*This article was originally published on Financial Reporter
