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The “Un-mortgageables”: What Rising UK Rents Really Mean

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Shahram Shaida, CEO of home buying and investment platform Allbricks, considers the longer term implications of rapidly rising rents for aspiring homeowners in the United Kingdom.

The Office of National Statistics (ONS) has recently reported an average 5.3% increase in UK rent prices since July 2016.

Surging rent prices can primarily be attributed to a diminishing supply of rental properties. The rise in buy-to-let mortgages has compelled landlords to adjust rental rates in response to increased interest rates. According to HSBC UK, the average rate on a two-year fixed-rate buy-to-let mortgage has reached 6.67%, driving landlords to adapt to rising borrowing costs. Escalating interest rates and tax hikes may prompt landlords to offload properties, as evidenced by recent data showing landlords incurring an average loss of £10,000 upon selling their properties.

The fashion for divestment exacerbates the existing demand-supply imbalance in the rental market, leading to further escalation of rental prices. This trend also coincides with the government’s ongoing struggle to construct affordable homes. Despite approximately 1.2 million people being on waiting lists, a substantial majority of local councils have not initiated any new home construction within the last five years. This situation intensifies the undersupply of available rental properties.

As rents across the UK experience unprecedented increases, potential homebuyers find themselves facing a precarious situation. The combination of rising interest rates and the cost of living may lead to property price reductions, but simultaneously makes securing a mortgage or saving for a deposit more challenging. Moreover, concerns over interest rate hikes prompt mortgage companies to demand higher deposits, leaving prospective buyers with fewer mortgage options. Those with less than a 15% deposit face a diminishing range of mortgage offerings due to concerns about negative equity, further constraining their options.

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There has been a 46% increase in individuals cohabiting with parents, as they struggle to make the transition to independent living.

This dilemma has significant implications, resulting in a growing number of individuals remaining with their parents due to the unaffordability of housing. There has been a 46% increase in individuals cohabiting with parents, as they struggle to make the transition to independent living. Moreover, in 2023, the average full-time worker is expected to pay 7.8 times their annual earnings for a home, a stark contrast to the 3.5 times ratio in the 1990s. This financial gap underscores the fact that many individuals are, in essence, renting their lifestyles due to inaccessible homeownership.

Over a quarter of a million buy-to-let landlords are facing a remortgage crisis

The repercussions extend to landlords as well. Over a quarter of a million buy-to-let landlords are facing a remortgage crisis, grappling with new government regulations that particularly affect non-full-time property investors.

Lastly, an often overlooked group is the “un-mortgageables,” encompassing freelancers, contractors, business owners, and startup founders. These individuals struggle to secure favorable mortgage terms due to their unique employment status. While specialised providers exist, their services come at a premium compared to traditional roles. The disparity raises questions about equitable treatment for those with commendable income stability and rent payment records.

The convergence of rising rent costs, housing shortage, and stringent lending criteria necessitates a comprehensive approach. These challenges have far-reaching implications for aspiring homeowners, landlords, and the freelance workforce. To address this complex issue, policymakers and stakeholders must chart a sustainable path that encompasses the diverse aspirations of individuals and promotes a more balanced housing landscape.

Shahram Shaida

Shahram Shaida is the CEO of United Kingdom-based home buying and property co-investment platform, Allbricks.

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