A leg up for Britain’s generation rent

Will David Cameron’s new mortgage plan get British renters on the property ladder?

A leg up for Generation Rent

Jason Alden/Getty Images

There was a time, not long ago, when middle-class Britons could expect that, with the help of an education and a decent job, they would one day own their own home. Kathleen Taylor, a 37-year-old civil servant, bought her first London property back in 1997, a two-bedroom apartment that cost her just $180,000. Even then, as with many young, first-time buyers, her mother had to underwrite the mortgage and provide part of the down payment (a loan she later paid back). Since then, Taylor has moved house several times, enjoying the security of being on what the British call “the property ladder”—a metaphorical climbing structure long regarded as the path to financial security.

Turns out she was one of the lucky ones. Today, even with low interest rates and moribund house prices, many Britons Taylor’s age and younger have begun to give up hope of ever “getting on the ladder.” An example of how quickly things have changed: Taylor’s 33-year-old younger brother, a freelance sound designer, has, she says, “been completely priced out of the London market,” despite having cobbled together a decent deposit from savings and a recent inheritance. “And that’s assuming he could even get the mortgage.”

On the last point, Britain’s Tory-led government has introduced a program they hope will change things for Britain’s burgeoning “generation rent.” On Nov. 21, Prime Minister David Cameron unveiled a government-backed mortgage scheme that will allow first-time buyers to purchase homes with only five per cent down. (At present, banks insist on minimum deposits of 20 per cent from first-time buyers, which is no small demand. Though house prices have sunk back to 2006 levels, they are still overvalued by at least 25 per cent, according to The Economist.)

In a speech to the Confederation of British Industry, Cameron presented the plan as one that would help kick-start the torpid economy, rather than risk creating another borrowing bubble. “When first-time buyers on a good salary cannot get a reasonable mortgage, the whole market grinds to a halt,” he told the assembled audience. “And that ricochets around the economy, affecting builders, retailers, plumbers—all the people that depend on a housing market that is moving. If we don’t do something like this, we are not going to get this vital market moving. We will restart the housing market and get Britain building again.”

The scheme is part of a larger plan to solve Britain’s ongoing housing crisis. At present, new housing starts are at their lowest levels since the 1920s. This, combined with the high rents, inflated real estate prices and skittish mortgage lenders, has led to difficult times for those looking to get in the market at the ground floor. Now, the government’s fix also includes a $660-million fund to help kick-start previously stalled building projects, open green belts to development, and provide further incentives for tenants in subsidized housing to purchase their homes. In a written introduction to the project, the Prime Minister described the current housing crisis as one in which “lenders won’t lend and builders won’t build and buyers won’t buy.” This scheme intends to reverse the crisis on all three counts.

But Cameron is being harshly criticized on both sides. Labour Leader Ed Miliband called the new scheme “too little too late—from the man who was responsible for choking off growth in the British economy when he came to power.” He went on to point out that the new building fund puts back just 10 per cent of the $6.6 billion Cameron cut from housing investment last year.

Some fiscal conservatives have lashed out at the program as well, albeit for different reasons altogether. On his blog, Ian Cowie, personal finance columnist for the Daily Telegraph, savaged the plan, saying, “the government now proposes to encourage laxer lending to people with no history of repaying debt so that they can buy overpriced property. You really could not make it up.”

Even some prospective first-time buyers in a position to benefit from the new scheme are suspicious of the idea. “Ninety-five per cent mortgages—isn’t that how we all got into this problem in the first place?” asked Elizabeth Claffey, a 29-year-old London finance worker who has spent the past seven years renting shared accommodation because she cannot afford the steep deposit required to buy. In the same breath, though, she conceded the situation as it stands is untenable. “I don’t know anyone my age who has bought without the help of their parents, and that’s simply because the gap between what my generation earns and how much real estate costs has widened enormously.”

As for Kathleen Taylor, she supports the new mortgage indemnity scheme because it stands to help first-time buyers like her younger brother. “When prices are falling, interest rates are low and people still can’t get on the ladder, that’s the credit crunch,” she says. “If the government can ease that a bit, they’re attacking the root of the problem. And as a taxpayer and a property owner, I don’t mind taking on some of that risk.”


A leg up for Britain’s generation rent

  1. Opening green belts to development is an awful idea in a country the size of the UK.  Think we can get down to zero trees?  This will just postpone the bubble from popping and suck a few more people in before it does.  The way to stop the housing market from becoming unaffordable is to stop foreigners from investing so much money in it.  Rich people in Greece and Italy are investing money into London real-estate to protect their assets, but that destroys affordability for young Britons.  Limit foreign buyers, limit speculation, ensure that immigration rates are reasonable and housing prices should become affordable again.

  2. Nobody is going to like this, but through much of history, multi-generation households were the norm (and still are in much of the world). Only the fantastic and unprecedented prosperity of the 1945-1973 period allowed that to change for the vast majority of the population. 

    Broad-based homeownership by nuclear families (or worse, single people) has been an ecological, social, and economic disaster. It has produced urban sprawl, and promoted a car based society. It has also produced a socially disconnected populace – long drives through traffic now separate us from the kind of linkages that are vital to collective action (be it in the form of bowling leagues or volunteer organizations). It also resulted in tremendous pressure on parents, particularly after women entered the workplace. Without stay-at-home moms or extended family, you either get latch-key kids, exorbitant daycare costs, or profoundly exhausted parents.  

    Economically the belief in houses for everyone has helped create political pressure for cheap credit, and contributed to a boom-bust economic cycle in real estate. This, in turn, has secured a belief that a home is an investment, even though the historical data shows that, adjusting for quality, the real price of a home has been stagnant since 1890 (exceptions being the 1920s and 3 booms and subsequent busts, from the 80s till now). 

    The solution is for kids to live with their parents indefinitely. However, we also need to change our view of multi-generation households. It needs to be a cohabitation based on equal responsibilities between children and parents. It will not work, if you have a lazy young adult playing video games all day, or an over-indulgent parent that views their adult children as a large baby. 

  3. It is restrictive land use policies in the UK that is the cause of unaffordability.  So this policy is useless, it simply allows people to buy things they cannot afford.

    Even with this policy, it is likely that with continued population growth, even the lower down payment will eventually become out of reach for most people.

    • Can we assume that you look forward to a country without trees?

      • Most of Britain (I’m guessing 95%) is farmland.  It already has no forests, except in Scotland and Northern Ireland and maybe a few in Wales.  It already is a country “without trees”, have you been there?  It’s simply a matter of a) allowing more high rise developments for condos and apartments in the cities and b) allowing more farmland, maybe 1 or 2%, to become housing.

  4. Ordinary people who work, will never get the same as the middle classes. Working Class people are not in possition of buying a flat or a house, they rent. They will be sharing within their families and those who love them.

    One example for one young man: he is in his 20’s and he has worked in a Mak place, cooking and working and he has just got the sack. He is no longer to keeping in the landlord and he will have to go back to one in his family.

    He cannot move into his grandparents because grannie is too ill to look after one.

    The Conservatives don’t give a toss in the Westminster Palace but Unions are starting to show with the 2 million working people in their Unions. Just consider with the strike in the america, in 1912, and the women and children won!

    • He can’t move in with his grandparents because they are too ill to take care of him … my G*d what ever next!

  5. He’s just replacing Generation Rent with Generation Debt. Precisely what we have here in Canada. We’ve avoided a housing crash thus far, but we can’t hold it off forever. 

  6. “Now Look At Them Yo-Yo’s That’s The Way You Do It

    You Play The Guitar On The MTV

    That Ain’t Workin’ That’s The Way You Do It

    Money For Nothin’ And Chicks For Free

    Now That Ain’t Workin’ That’s The Way You Do It

    Lemme Tell Ya Them Guys Ain’t Dumb

    Maybe Get A Blister On Your Little Finger

    Maybe Get A Blister On Your Thumb

    We Gotta Install Microwave Ovens

    Custom Kitchen Deliveries

    We Gotta Move These Refrigerators

    We Gotta Move These Color Tv’s

    I Shoulda Learned To Play The Guitar

    I Shoulda Learned To Play Them Drums

    Look At That Mama, She Got It Stickin’ In The Camera

    Man We Could Have Some Fun

    And He’s Up There, What’s That ? Hawaiian Noises ?

    Bangin’ On The Bongoes Like A Chimpanzee

    That Ain’t Workin’ That’s The Way You Do It

    Get Your Money For Nothin’ Get Your Chicks For Free…”

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