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With the Bank of England’s rate rise to five per cent, soaring rents, and the cost-of-living crisis, now is the time for the government to resurrect Help to Buy, reports national law firm Dutton Gregory.

Many would-be first time buyers are having to put their dreams of home ownership on hold, creating further pressure on the rental market, where it is not uncommon for over 20 applicants per available property. Dutton Gregory Solicitors is calling for the reintroduction of the government’s Help to Buy initiative to stimulate the first rung of the market.

Housebuilders could also offer their own private alternatives, such as Proportunity, Fairview Homes’ Save to Buy scheme, and similar initiatives by St. Modwen Homes and Kettel Homes. Prior to the introduction of Help to Buy in 2013, Barratt and Bovis Homes also had their own versions, to help first time buyers with low deposits to purchase a new home.

“The Help to Buy scheme was extremely beneficial to first time buyers, housebuilders, and the overall health of the property market.

As it was self-funding, it should never have been scrapped.

With interest rates now at their highest level for 15 years, it should be reintroduced as soon as possible.

First time buyers are finding it much harder now, so there is a danger of a generation of young people being denied accessible home buying opportunities.

Meanwhile, the demand for rental properties far outweighs supply.

Prior to a decade of Help to Buy, there was Home Buy Direct and First Buy, so how is it right that there is no longer a government initiative to make home ownership a possibility for those without a substantial deposit?

The government’s First Homes initiative enables first time buyers that meet Local Authority criteria to secure a home for 30% – 50% less than its market value, but there are so few of these homes available.

As there is currently no sign of widespread first time buyer assistance on the horizon, the only way forward is for more housebuilders to introduce their own private schemes in order to convert those in the rental trap to new homeowners.

With a General Election on the horizon, I do believe the government will introduce a scheme similar to the previous Help to Buy within the next 12 months, but it’s needed now.

Housing developers are lobbying for its resurrection, but will they step up with their own initiative in the meantime?”

Help to Buy closed to new applicants in England last year, with the final deadline to complete a purchase having now passed earlier this year.

The most recent iteration of Help to Buy enabled first time buyers to borrow an equity loan to cover up to 20% (or in London 40%) of their property purchase price.

The latest government statistics showed that 383,903 properties were bought using the scheme between 1 April 2013 and 31 December 2022.

While there is a mortgage guarantee scheme and opportunity for a Lifetime ISA, there is currently no scheme backed by the government which offers the same accessibility and inclusivity that Help to Buy once did.

Source: Property Notify

The past decade has seen significant changes in the private rented sector.

The sector has grown substantially, now housing approximately 20% of the UK population.

Alongside this expansion, there’s been a heightened emphasis on elevating standards within the sector, offering improved protections for tenants and recognising the continued commitment to professionalism from landlords and letting agents.

But what does the future hold?

Regulation and Compliance

Regulation and compliance are critical areas for the sector’s future.

Changes in legislation are increasingly likely, as policymakers seek to balance the needs of landlords, tenants, and the wider community.

One such change involves the regulations related to Energy Performance Certificates (EPCs).

The dates for these regulations have been frequently altered, causing confusion and uncertainty for landlords.

The current mandate states that, by 2028, all privately rented properties must have an EPC rating of C or above.

This is a major shift, demanding significant investment from landlords to improve energy efficiency.

This becomes particularly pertinent when considering that about two-thirds of homes in the PRS currently have an energy rating of D or below.

In numerical terms, this implies that over three million privately rented properties in England and Wales need enhancements to meet government targets.

But the drive for energy efficiency transcends mere compliance; it also elevates the attractiveness of properties to tenants. Higher-rated energy-efficient properties generally command higher rents and witness lower vacancy rates.

To navigate this dynamic landscape and ensure regulatory compliance, landlords and property managers must stay updated.

Proptech solutions, such as Helpthemove, are well-equipped to facilitate this, offering easy access to current legislation, guidance and best practices.

The Cost of Living Crisis

The cost of living crisis has been a significant talking point, with inflation, energy price hikes, and wage stagnation hitting tenants hard.

This is a significant concern for the lettings market. While landlords must cover their costs, there is a risk that rent increases will push properties beyond the reach of many tenants.

This, in turn, could lead to higher vacancy rates and lower returns for landlords. It’s a delicate balancing act, but one that the sector must navigate carefully, to protect both landlords and tenants.

Short-term vs Long-term Lets

Looking to the future, we can expect to see a shift in the balance between short-term and long-term lets.

The COVID-19 pandemic changed the way people work and live, sparking a rise in remote working and a desire for more flexible living arrangements, which has boosted demand for short-term lets.

However, the stability and security of long-term lets are still vital for many tenants, particularly families and older renters.

Neither short-term nor long-term will ‘dominate’ the market, instead we will see a diverse mix of rental options, tailored to meet the needs of different tenant groups.

This diversification presents opportunities for landlords and letting agents, who can differentiate their offerings and target specific segments of the market.

Technological Innovation

Technological innovation will continue to shape the lettings market. Proptech has already revolutionised many aspects of the sector, from property searches to contract signings.

The future will bring further innovation, as AI and machine learning are increasingly harnessed to predict market trends, optimise property management, and improve tenant experiences.

Forward-thinking landlords and letting agents will embrace these changes, leveraging technology to improve efficiency and service.

Tenant Expectations

We should also consider changing tenant expectations: The millennial generation, accustomed to the convenience of the digital world, are now a significant portion of the tenant population.

They expect seamless online experiences, rapid responses to queries and issues, and a high level of service.

Landlords and letting agents will need to adapt to meet these expectations, investing in systems and processes that deliver a modern, customer-centric service.

The lettings market is always evolving, shaped by changes in regulation, social trends, and economic conditions.

Source: Property Notify

The Royal Institutions for Chartered Surveyors (RICS) have expressed a more positive outlook for house prices, despite rising interest rates that are expected to impact buyers’ affordability. RICS’s reported that new buyer inquiries, prices, and expectations for the market were all less negative in May compared to previous months.

Despite their positive outlook for the property market, RICS warned that an increase in mortgage rates could constrain the market in the future.

While new buyer inquiries registered at minus 18% in May, the least negative reading in a year, the measure of house prices rose to minus 30%, marking the third consecutive increase.

 

Surveyors were neutral about the outlook for prices over the next year.

This contrasts with reports from mortgage lenders Nationwide Building Society and Halifax, which have shown a decline in house prices.

Mortgage rates have risen recently due to higher-than-expected inflation, causing concern that it may weigh on the market.

RICS noted that the banking sector expects this, as many banks and building societies have already introduced products with higher interest rates.

While economists have warned of a potential 10% slump in property prices this year, limited supply and a strong labour market provide some support.

RICS’s report also indicated an increase in houses coming to the market, with new instructions to sell property reaching the strongest level since March 2021.

David Hannah, Chairman at Cornerstone Group International, discusses the current state of the property market:

“While surveyors are showing a slightly more positive outlook for UK house prices, the looming threat of rising mortgage rates is likely to dampen the market in the coming months.

Stubbornly high inflation is expected to trigger further interest rate increases, leading to higher mortgage rates and reduced affordability for buyers.

The recent increase in mortgage rates, driven by higher-than-expected inflation, has already reached the pain threshold for consumers.

However, I remain confident in the UK property market. Historically, it has been more stable than any other global property market.”

Source: Property Notify

The UK’s property market and the lending landscape have undergone an exceptionally turbulent period.

Inflation has remained in double figures, while the Bank of England has embarked on a rate hiking cycle that has culminated in a rapid rise in interest and mortgage rates.

Consequently, during the fourth quarter of 2022, numerous lenders opted to temporarily halt or withdraw their products.

This cautious approach prompted homeowners and investors to put their purchasing plans on hold, resulting in a noticeable decline in house prices. Nevertheless, despite the ongoing economic challenges faced by the industry, there are indications that the property market is gradually stabilising: prices are starting to show signs of growth, while the level of activity suggests that the market may be on the rise.

As more buyers and borrowers resume their plans, the specialist finance sector is expected to experience a substantial surge in demand in the coming months and years, with the specialist mortgage market alone projected to reach a value of £16 billion by the end of the decade.

Already, as borrowers’ requirements continue to evolve and the demand for flexible financial products increases, homeowners and investors are turning to alternative sources of finance for their investments in the UK property market.

For instance, in the first quarter of 2023, recent data revealed a remarkable surge in bridging loan transactions, reaching record-breaking levels with a 68% increasecompared to the previous quarter.

This clearly demonstrates the strong demand for more flexible financial products that may not be readily available from traditional high street lenders.

With this in mind, the specialist lending market appears to be on an upward trend.

Flexibility and adaptability are key in the current market

Undoubtedly, the current economic environment poses significant challenges for borrowers.

Despite a recent decrease to 8.7%, inflation remains a concern, causing the value of borrowers’ money to erode in the prevailing climate.

Additionally, while the Bank of England has indicated that interest rates are approaching their peak, further rates are still likely.

As such, the rapid increase in borrowing costs since December 2021 continues to exert financial strain on borrowers, deterring some investors from proceeding with their investments in the UK property market.

Regrettably, the persisting economic headwinds hinder both investors and homeowners who aspire to capitalise on the ongoing opportunities within the UK property market, especially because borrowers are unlikely to discover the flexibility and optionality they require from traditional high street lending channels.

Certainly, the recent upheaval in the mortgage market has compelled many high street banks to tighten their lending criteria.

This, in turn, has led to the adoption of even more stringent tick-box methodologies for assessing loan applications.

As a result, homeowners and investors with intricate financial situations will encounter greater difficulty in accessing financial products from mainstream lenders in the current climate.

Therefore, in order to make investments in the property market more accessible, the specialist lending sector has a vital role to play in providing the flexibility and adaptability that borrowers need to invest with confidence.

Lenders who can provide flexibility and certainty should see demand grow

Naturally, lenders have had to adjust their rates in line with the Bank of England’s base rate.

However, even as they do so, there are numerous ways in which they can support borrowers during these uncertain economic times.

Offering certainty in an unpredictable climate is an excellent starting point.

For instance, borrowers experiencing cash flow challenges or concerns about meeting repayment obligations would greatly benefit from lenders who can provide fixed-rate repayment terms spread over an extended period.

By providing such solutions, lenders can alleviate some of the financial pressures faced by borrowers.

Delivering high-quality customer service is another way of supporting borrowers in the current climate.

Given the circumstances, investors will inevitably have numerous inquiries when engaging with lenders about their products.

As such, lenders who can effectively and transparently communicate how their products may be influenced by the economic situation will prove to be of the most value to their clients.

By addressing clients’ concerns and providing clear information, lenders can establish trust and foster strong relationships with borrowers, imbuing a much-needed sense of confidence in the market.

Elsewhere, by taking a more flexible and holistic approach to considering loans, lenders can support those borrowers with the most complex of applications, giving them access to financing and enabling a broader spectrum of homeowners and investors to participate in the UK property market.

This, in turn, is expected to bolster the demand for specialist finance products in the near-term future.

The ability to approach each client as a unique case is especially advantageous for lenders operating in the prime central London market.

With a significant proportion of foreign investors, borrowers tend to encounter challenges in securing the loans they require through traditional high street lenders.

Notably, the super-prime postcodes in London have witnessed a resurgence in activity, reaching levels comparable to the pre-Brexit era.

The demand from this subset of the market should expand in the future if lenders can meet their needs.

Likewise, the demand in the prime central London (PCL) market is significantly driven by high-net-worth individuals who frequently possess valuable assets such as real estate, fine art, or luxury vehicles.

These assets can be utilised as collateral for loans but are not often accepted by lenders with a rigid tick-box approach.

Therefore, specialist lenders are well-positioned to evaluate the unique circumstances of each borrower, enabling them to offer personalised lending solutions that align with the borrower’s overall financial situation.

Concluding thoughts

As the recovery of activity levels and the resumption of price growth in the property market continues, a growing number of homeowners and investors will be eager to engage with lenders about increasing their activities in the UK property market – but they’ll expect a high level of flexibility, certainty, and customer service.

As such, while the specialist lending sector appears to be on the rise, it is crucial not to become complacent and we must continue to explore innovative approaches to supporting our clients and meeting their ever-evolving needs in the current economic environment.

Source: Property Notify