Despite the Bank of England’s interest rates being at an all-time low of 0.5%, the number of working young people unable to afford homes of their own is incredibly high. Currently labelled as ‘Generation Rent’, the main problem facing these people is that house prices are so high that they are unable to cover their rent and save for a deposit at the same time. The worry for many appears to be that they will be renting for a large proportion of their lives, rather than investing in a home of their own.
Turning ‘Generation Rent’ into ‘Generation Buy’
During his closing speech at this year’s conference, the Prime Minister announced a ‘national crusade’ to get more affordable homes built, thus tackling the ‘Generation Rent’ issue. Over the next five years, David Cameron plans to have 200,000 new starter homes built which will be sold at a discount and available exclusively to first-time buyers.
Along with the announcement that fulfills his General Election manifesto pledge, plans were also laid out to relax the planning rules currently imposed on developers when it comes to building new homes. At the moment, regulations can actually result in starter homes being built on new sites for the purpose of renting, rather than buying.
No doubt many will have welcomed this announcement from the Prime Minister, in particular those who have been struggling to get onto the property ladder. One the biggest barriers facing those currently renting is being unable to save up for a large deposit. Under the scheme, the new starter homes will have discounts applied, with prices in London capped at £450,000 and those elsewhere in the country at £250,000. With these maximum prices in place, hopefully the new policies will drastically reduce the cost of owning a home, thus giving more young people the leg up they need.
What does the future hold for the housing market?
The UK’s housing market has been experiencing somewhat of an imbalance over the past few years. Largely due to demand for homes vastly outweighing the supply available, house prices across the country have skyrocketed. This, in turn, makes it more difficult for people to get on the housing market, and the vicious cycle continues.
By making more affordable homes available to more people, this new initiative could spark a change whereby we see more people climbing the property ladder with affordable mortgages, which in turn could bring property prices down.
However, the plans announced today have drawn criticism from some who worry that the starter homes won’t be available to those on the country’s lowest incomes. While making more homes available is certainly a step in the right direction, the government must take care to ensure that potential homeowners aren’t segmented further based on their earnings. Those who are struggling to strike the balance between paying rent and saving for a deposit will need more support to buy a home of their own.
David Ingram is the founder of mylocalmortgage.co.uk – an online platform that enables people to search for mortgage advisers in their area.