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Renters and deposits

Journalist: Grace Gausden, i newspaper

ended 25. November 2022

Renters will find it difficult to afford a deposit without parental help or an inheritance as prices continue to rise. 

  • What solutions have been put forward by the Government and opposition to help renters get mortgages? 
  • What other ideas could help? 
  • Will this realistically happen especially with the end of Help to Buy?

10 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
When it comes to housing, this government is useless, totally devoid of ideas. They announced the end of Help to Buy with no other solutions to stimulate a declining property market. The stamp duty changes are window dressing to a much bigger problem. The government needs to build, build, build but they appear paralysed by their own ineptitude. Sunak won't propose anything that might draw opposition, so any supply side reforms that make building homes more easily will be avoided. This just means it will be a deeper and darker recession for longer. The only long-term solution for young people is a more affordable entry price into the housing market and that requires government support for house builders and buyers alike. There is plenty that could be done if we had a more imaginative government with more ambition.
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David Robinson
Co-Founder at Wildcat Law
I am going to be really controversial here, he says donning his tin hat. But one change that the Government could introduce that could potentially help a significant number of first time buyers would be to allow commission to be paid on Lifetime ISA's (LISAs). Now this will undoubtably upset many people for whom commission payments are blasphemous but the take up rates for LISAs are ridiculously low. Yet they are probably the best way to save for a deposit. Why is the take up rate so low? Because young savers often cannot afford to pay up front for the financial advice. Allowing commission payments would permit the big product advisers to take a pragmatic approach and assist the savers by effectively "lending" them the advice fee, as this would be repaid from ongoing charges out of the LISA. The Government has repeatedly shown they want individuals to solve this problem along with industry so why not try something that helps both?
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
Renters will find it hard to raise a deposit, as they are currently paying the rent, bills, and general living costs. This, of course, limits the income they are able to save. This is where a good broker comes into play, as their access to a wide range of lenders makes buying a property doable. Lenders, such as Barclays, have the Family Springboard mortgage, which allows the buyer to buy a property with a zero deposit. It requires a helper, such as a parent, to 'lock away' 10% of the purchase price in an account for five years. They will get this back after five years if the mortgage has continually been paid. Generation Homes is another lender with an income booster offering, which allows a helper, like a family member, to increase the mortgage possible, but not named on the deeds. Or even the deposit booster, which allows a family member to provide an interest-free loan, which they will get back upon the sale of the property. Such schemes have been designed to allow young people to buy property. I can see more lenders coming with similar offerings in the next few years.
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Elliot Cotterell
Director at Windsor Hill Mortgages and Cotterell & Cotterell Commercial Finance
It's no secret that it is getting harder and harder for first-time buyers to get on the property ladder. With inflation at above 11% and interest rates having significantly increased from where they once were, coupled with the rising cost of living and energy costs, a lot of people are left with very little if anything left at the end of each month making it very hard to purchase. The danger of introducing low to no deposit mortgages creates almost certain risk of negative equity so we need to find a suitable solution. Perhaps we might see something introduced once the dust settles a little more.
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Justin Moy
Managing Director at EHF Mortgages
There are a number of equity loan solutions in the wider mortgage market, which operate in a similar fashion to the Help to Buy scheme, but can be for both new build and previously owned properties. Providers such as Proportunity are credible solutions to the withdrawal of Help to Buy, and for those with smaller deposits if a traditional 95% mortgage option is not available. An extension to the government's Mortgage Guarantee scheme, set to end in December, will be needed to help lenders support new borrowers, too.
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Imran Hussain
Director at Harmony Financial Services
The biggest issue for the past 20 years has been the lack of housing supply. Right to buy allowed social housing stock to be taken off the market and was not replaced, so we now have more renters in the private rented sector than ever before. This already small pool of stock is also now shrinking, with tax changes forcing small landlords to sell up. What any government, current or new, needs to do is build more social/council housing and not allow it to be part of any right to buy scheme. This will allow renters to have affordable rents and, if they wish to purchase a home, they can do so by saving a deposit and then going to the open market. It's a simpler way to ensure there is social housing stock available for future generations to come. I
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Chris Schutrups
Founder at The Mortgage Hut / William James Wealth Management
The government have a couple of leavers they could consider pulling to help renters get onto the property ladder. The winding up of the help to buy scheme has been met with no real meaningful alternative for first time buyers, apart from the Bank of Mum and Dad, who by the way are the UK's 10th largest lender according to Legal & General. Whilst working in the Middle East I saw schemes like "Rent to Buy" which allowed consumers to purchase a property whilst the rental payments went towards eventual ownership, this was done by developers and governments, especially in the UAE where the housing market is key to economic growth, to continue to drive and innovate in the housing market. The challenge with this is how do you fund it and provides the funding? Another option is to give lenders more support and/or assurances at the higher end of the loan to value scale would give them an element of comfort to lend to would be homeowners with lower deposits. This would of course need to be supported by the Bank of England and some restrictions they currently place on lenders about high LTV and LTI lending would need to be eased. With rising interest rates we've seen the buy to let market drive up, surely this is a great time to encourage and stimiluate the first time buyer market.
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Kylie-Ann Gatecliffe
Director at KAG Financial
We are seeing more forward-thinking solutions from lenders such as Generation Home, which helps buyers with their own equity loan offering, whereby family and friends can support the buyer. They also offer options to help boost affordability by involving family members. I predict an increase in similar offerings in the market over the next few years as renters find it harder to save. I do think the government need to step up and offer a bold solution to what is becoming a more common issue. As rents have risen significantly and the cost of living continues to rise, more clients we speak to are having to rely on savings for emergencies and other living costs, rather than working on their deposit. Plans from the government to offer more affordable housing schemes, or ways to boost buyers' deposits, are desperately needed.
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Michael Webb
Managing Director at Mortgage Republic
Renters have always found it difficult to save a deposit because they already have the costs of running a household, and in most cases- more so with an increasing cost of living, it is difficult to find surplus income to save in any significant sums. The most successful FTBs who do not use gifted or inherited money are those who sacrificed lifestyle by remaining with their parents well in to their 20s, enabling them to put aside the deposit funds in large quantities on a monthly basis. A solution for renters moving forward we would like to see are specific deals that allow them to buy their rental property. As landlord lending is becoming tighter and more difficult to achieve we are likely to see a surge in landlord disposals over the next couple of years. Whilst there are criteria in the marketplace allowing renters to receive a gift of equity as deposit from their landlord, it would be good to see this expanded, with further affordability consideration around the fact the applicant is actually running the property as a household already- potentially allowing them to borrow more based on proven affordability via actual expenditure.
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Dan Osman
Head of Later Life Lending (Age 55+) at UK Moneyman
Many parents, grandparents and even great-grandparents have been using equity release to help younger family members with deposits for years. The early inheritance approach remains very popular across all wealth sectors however we are also now seeing more clients using lifetime mortgages as part of a wider, IFA advised, decumulation process. This collaborative approach can come into its own where the goal is not just to help in the immediate need for a house deposit but also to try to mitigate inheritance tax and potentially pass on unused pension funds within lifetime allowance limits. It takes into account that although the problem of higher housing and living costs has a big impact on the younger generation now, it has the additional effect of reducing capacity to make pension contributions and provide for their later years. There is more need than ever for joined-up, holistic planning with associated professionals working together to support clients goals which are rarely in isolation from their hopes for their wider families.