The term ‘Generation Rent’ has long been used throughout both the rental and sales markets, developing many connotations over the years. Typically referring to young adults aged between 18-40, Generation Rent is used to describe those who have been priced out of the property market, which is becoming increasingly common.
The property market has grown beyond measure over the past 18 months and with the average UK property price hovering around £322,000, making it increasingly harder to buy, Generation Rent is growing.
But as the government continues to introduce savings incentives to turn Generation Rent into Generation Buy, will this demographic continue to grow in the coming months? Joseph Mews, a leading UK property developer, discusses whether Generation Rent is here to stay.
What is Generation Rent?
The UK’s climbing house prices have always been a significant barrier for first-time buyers looking to get on the property ladder, with recent figures suggesting that half of millennials will likely rent well into their forties, while almost a third of this demographic may never own their own home.
For many years, renting a property has typically been perceived as a ‘stepping stone’ – a temporary solution for those who will eventually buy their own property. However, prices have been on an upward trajectory for the best part of 10 years, and more recently, tenants have become content to rent property indefinitely, with less ambition towards buying.
That said, as the number of under-35s renting in England creeps towards 50%, the government has made many conscious efforts to turn Generation Rent into Generation Buy. First introduced by the Conservative party in 2020, the concept of ‘Generation Buy’ is an ongoing effort to make the UK property market more accessible to first-time buyers.
The share of 25–34-year-olds who are owner-occupiers has fallen by around 10% across the UK over the past 20 years, catalysing a rise in 95% mortgages and multiple savings incentives, such as the Help-to-Buy ISA. But with another recession and the unexpected performance of the property market, the government’s efforts haven’t been enough for a lot of first-time buyers.
How Has Covid-19 Impacted Generation Rent?
While many feared the global pandemic would have a similar effect as the 2009 financial crisis, the Stamp Duty holiday propelled the market – which we are continuing to see to some degree. Although this tax incentive steered the industry away from a market crash, the Stamp Duty holiday minimised many first-time buyers’ chances of getting on the property ladder.
As well as pushing prices to unaffordable highs, the demand for UK property made the availability of 95% mortgages scarce, to say the least. Data from the beginning of the pandemic suggested that mortgage providers closed their 90% and 95% mortgage offers to new customers almost immediately. Instead, Loan-to-Value for mortgages for first-time buyers stood at 82% – significantly lower than 95% mortgage deals.
With first-time buyers paying, on average, £73,000 more to get on the property ladder, it’s no surprise that Generation Rent is growing. In comparison to 2019, the number of first-time buyers in the market was 13% lower in 2020, largely driven by the unavailability of affordable mortgage deals.
Equally, the UK rental market underwent considerable growth throughout the pandemic, with increasing rents and rising demand. Despite the average rent across England topping £1,000 per month, renting a property is now more affordable than buying. While the monthly savings was initially an incentive for first-time buyers to get on the property ladder, rising property prices and inaccessible mortgages has made renting 7% cheaper each month than buying.
Is it Here to Stay?
On average, renting is almost £100 cheaper on a monthly basis than buying a property, even with a 10% deposit. Although the conclusion of the Stamp Duty holiday could see property prices stabilise and a degree of affordability return to the market, it’s likely that Generation Rent will always remain in some way, shape or form.
The Stamp Duty threshold is due to return to £125,000 on 1st October 2021, but the flurry of supply and demand that we continue to see has bolstered property forecasts for 2022 and beyond. With up to 21% price growth expected in the next four years, the likelihood of Generation Buy outpacing Generation Rent is slowly but surely decreasing unless government initiatives can bolster interest in buying.
It’s also important to remember that renting will never truly disappear. For a lot of people, renting a property will always be a ‘stepping stone’ to get on the property ladder, and while these tenants gradually move from one market to the other, the natural new wave of tenants will continue to sustain Generation Rent. Whether it’s students renting a HMO, or graduates moving to city centre apartments, there will always be a need for rental property.
The difference is, Generation Rent has generally been perceived as a temporary solution for the younger generation. However, as renting continues to be a more affordable option and perceptions towards this market become increasingly positive, renting indefinitely may continue to grow in popularity especially with the continuous cycle of new, younger tenants entering the market.