UK Rent Trap – A frustrating reality for many would-be home owners

‘The government's official English Housing Survey showed that in 2012-13 the 4 million households in England's private rented sector paid an average of £163 a week for their homes, an increase of £10 since 2008-9, while the 7.2 million households buying their home through a mortgage paid £149’

Source: http://www.moneycrashers.com/

The above statement taken from a recent article in the Guardian Online (Link), provide a startling reality into the changing state of the UK Housing market.  On one side we have the private landlords who will be rubbing their hands together at the prospect of a regular supply on tenants for the mid to long term future and on the other hand we have those who are trapped in the rent cycle as they struggle to save a deposit, which will allow them onto the property ladder.

Those with aspirations to get become homeowners must be extremely frustrated as they hand over a high percentage of their income to their private landlord each month, money which to them (the tenant) is lost forever.  At the same time the cost of living continues to rise steadily and the ability to put money aside for a deposit becomes even more of a challenge.  The outcome of this is often many years in rented accommodation, fundamentally paying somebody else’s mortgage for them, as tenants try to claw themselves out of the ‘rent trap’ and into home ownership.

Source: http://blogs.independent.co.uk/

If, as the research above indicates, that the average weekly rental payment is higher than the average weekly mortgage payment, then the problem does not appear to be affordability of mortgage repayments, moreover, the stumbling block appears to be the ability to save a deposit and being able to take that important first step onto the housing ladder.   I have used the word frustration already however for anyone not in this position (myself included), just for one moment put yourself in the place of a tenant who is handing over a sum of money to a landlord for rent that could easily be paying off their own mortgage if they just had the ability to get onto the property ladder in the first place.  I am sure frustration does not even begin to explain how these people must be feeling.

The UK Government will argue that their Help to Buy scheme has gone some way to addressing some of the problems within the housing market, by making home ownership more accessible to many who are caught in the rent trap described above.  In part this is true as there is plenty of evidence to show that the Help to Buy scheme is bringing first time buyers to the market earlier than they would have been able to due to the requirement of a much lower deposit (5%).  In a further article in the Guardian Online (Link) the Government cite their flagship Help to Buy scheme as the main driver for the recovery in the housing market:

‘The government's controversial Help to Buy mortgage guarantee scheme has supported 7,313 home loans worth a total of £1bn since it was launched in October, official figures show. The figures for the first six months of the mortgage scheme, released by the Treasury, showed the mean value of a property purchased or remortgaged through the scheme was £151,597, well below the average house price of £252,000 recorded by the Office for National Statistics’

In a previous article earlier this year UK Housing Market – ‘Help to Buy’ aiding recover or papering over the cracks? I questioned the future for those using the Help to Buy scheme to enter the property market early and in particular what could happen in five years when they will be required to start to payback the 20% deposit they have effectively borrowed; ‘after five years the help to buy loan will start to attract a fee, which if added to rising interest rates is going to impact significantly, particularly those at the lower end of the income scale.  This therefore begs the question, is the help to buy scheme aiding recover or is it just papering over the cracks?’ 

The Help to Buy scheme may enable a certain amount of people to get out of the rent trap, however unless these people can actually afford the repayments when interest rates start to rise and they are required to start to pay back the 20% deposit as well as face cost of living increases, then they are likely to find themselves back where they started, or possible worse as they will be saddled with more debt.

Source: http://www.amaresearch.co.uk/

The only way of addressing the issues within the housing market and to help those in the rent trap is to increase supply by building more houses. Easy to say you may think, but simple economics tells us that when there is high demand and limited supply for something, the market will naturally adjust to reflect this, pushing up prices (such as the situation we find ourselves in now).  Therefore, to deal with the desperate need for housing in the UK and to control house prices, the UK government should be focusing it’s effort on building more houses and not on temporary ‘fixes’ such as the spare room subsidy (referred to a bedroom tax) and schemes such as help to buy!  BBC News Online (Link) recently reported that the number of housing starts had risen by 31% over the last year, however and interestingly, the number of completions only rose by 4% over the year.

The answers to the problems within the UK housing market are well publicised, however until a committed strategic approach to house building is instigated, driven by the government, then the situation is likely to get worse, resulting in continued hardship and frustration for many would be homeowners.  Note the need for a ‘committed’ approach by the government and not the introduction of short term fixes, which is often the case.

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