Current conditions mean that it is increasingly difficult for first-time buyers to get on the property ladder. It is likely that a significant proportion of these would-be buyers will turn to the PRS for a home, sustaining demand and underlining the importance of housing tenures that work in harmony to support the different needs of our population.  

Affordability has deteriorated for many aspirant first-time buyers since Kwasi Kwarteng’s mini budget, with lenders withdrawing or pricing up mortgage deals. This has implications for the private rented sector (PRS).  

With new chancellor Jeremy Hunt scrapping many of the un-costed tax cuts outlined by his fleeting predecessor, and, to a lesser degree, the Bank of England’s (BoE) bond buying programme, markets have stabilised, and swap rates have started to fall.  

In turn, banks and building societies have re-introduced fixed rate mortgages but, even though there is now an expectation that rates won’t be forced as high as initially feared, the biggest rise to base rate for 33 years and forecasts of a two-year long recession means that products are still priced to reflect lingering market uncertainty. 

Alongside this increase in borrowing costs, Land Registry’s latest house price index reveals an annual increase of 13.6% in purchase prices, resulting in the average property in the UK being valued at £295,903.  

While this means that many home movers will have built up equity which they can use to secure the better rates available at lower LTVs, those yet to take their first step on the housing ladder will be seeing the increase in purchase prices gradually reduce the proportion of the loan that their deposit offsets.   

Add to this, Paragon research has highlighted how aspiring homebuyers foresee their moving plans being disrupted by the fastest rise in prices for essential items like food and drink for 40 years, resulting in inflation recently hitting double figures for the second time this year. 

Of the third of renters who are currently saving to buy a home, over half (56%) had reduced confidence in their ability to put aside money for a deposit as a result of the cost-of-living crisis. 

The majority (62%) of these would-be buyers have an average annual household income of less than £50,000. With average house prices now approaching £300,000, we see how the more than half (55%) of first-time buyers who intend to put down between 5-10% deposit will be at the limit of affordability calculations with many quite likely priced out of the current market.  

Rightmove has recently published data that suggests that this is having an impact on purchase behaviour with overall buyer demand 15% lower than the same two-week period in 2021, increasing to 21% amongst first-time buyers. 

I think it’s fairly safe to assume that a significant number of first-time buyers will currently live in a rented property so any reduction in their ability or desire to buy will help to sustain the tenant demand that has been evident since the pandemic and hit record highs more recently.  

While the sums don’t work out for some, I expect that there will be a contingent of professional landlords who have amassed significant equity in their large portfolios so are well placed to respond to this demand. 

But, even for these experienced operators, the openly anti-landlord sentiment seen in some sections of the media and shaping housing policy of both sitting and shadow governments, means that the increasing hassle may soon start to outweigh diminishing returns.   

If this does turn out to be the case and we see a landlords start to exit the sector in greater numbers, the pressure on supply that is already failing to meet demand will increase, resulting in higher rents and less choice for tenants.  

Examples of this are already being seen in the student market, particularly in Scotland following the rent controls introduced by the SNP. Students report of sofa surfing or, even worse, being told to suspend or withdraw from their studies after a “contraction in the private rental market”, as was the case at Glasgow University.  

For me, this period of political and economic upheaval has acted as a reminder of the importance of housing policy that recognises the benefits of each tenure and enables them to work cohesively so that people can live in a home that meets their current needs.  

My hope is that some good can come out of this period of instability and that the cabinet re-shuffle will provide an opportunity for a new and joined up approach to UK housing provision. Paragon, along with other lenders and industry peers, continue to engage with policymakers to provide some balance in the debate.  

Richard Rowntree is managing director, mortgages at Paragon Bank