Hackney Post’s Megan Kenyon shares her views on Sunak’s new ‘generation rent’ budget
Rishi Sunak is cool. Or at least that’s what he wants us to think. In the run-up to the spring budget, Twitter, Instagram and even Tik Tok were inundated with professional yet painfully awkward videos of the Chancellor flexing his PR muscles. But while Sunak has been sure to emphasise his commitment to help “generation rent become generation buy”, how far do his budget proposals actually go to achieve this?
For Generation Z and young Millennials, managing to get a foot on the housing ladder is a rare achievement. Average prices in the UK are at an all-time high of £250,000 – in part thanks to the prolonged stamp duty holiday. Added to that is the recent rise in unemployment, which disproportionately affects those aged between 16-24. The prospect of owning a house is not on the horizon for the bulk of the UK’s young people.
Still, in addition to the extension of the furlough scheme, support for smaller businesses and cash for hospitality, is the announcement of the return of the 95 percent mortgage. Explicitly set out to help the UK’s young people take their first steps towards buying a house, the policy would see buyers able to get a mortgage with a deposit worth 5 percent of the property, as opposed to the usual 10 percent. Banks stopped offering 95 percent mortgages last year at the start of the pandemic. Part of the loan will be guaranteed by the Treasury in order to encourage banks to give out riskier mortgages.
While on the surface this policy looks as though it has been set out with all the best intentions, in reality, it is unlikely to have the desired effect. Regardless of mortgage incentives, sky-high property prices will continue to deter young people from committing to putting down a deposit on a house or a flat. In London, the average salary required to pay off a mortgage is £77,000. In 2020, the average earnings of 18-21 year olds and 22-29 year olds were £18,200 and £25,948, respectively.
An additional problem for generation rent is that renting a property makes it difficult to put aside enough savings to even consider taking out a mortgage. Currently, private renters in the UK pay an average of £868 a month. On £20,000 a year, this sum would be 52 percent of your monthly salary. It would take years to make up the savings needed to take out a deposit.
Indeed, the plan to reduce the amount required for a mortgage deposit to 5 percent could even make matters worse for young people. The government has said that the scheme is open to anybody, regardless of whether they are a first-time buyer. It is possible that the reduction in mortgage deposits offers a financial incentive to those who already have a foot on the property ladder to expand their property portfolio. This could see house prices pushed up even further, making buying a house even more inaccessible to young people.
Offering a financial incentive for first-time buyers to take out a mortgage cannot be done in isolation. It must be accompanied by serious measures to make house prices more affordable to the UK’s young people. Currently, demand for housing outweighs supply, with a knock-on effect for house prices. The government should look at ways to reduce house prices, namely by investing in more affordable housing.
If Rishi Sunak truly wants to win the youth vote – and help generation rent become generation buy – it is not simply to be achieved through a flashy YouTube video or glossy Instagram post. Instead, he and the cabinet should focus their efforts on improving the affordability of housing in the UK.
