One of the biggest barriers to home ownership in recent years has been the incredible rate of house price growth.
The stamp duty holiday introduced during the pandemic may have ended, but the momentum it kickstarted doesn’t seem to show much sign of slowing.
In fact, the latest data from the Office for National Statistics shows that in the 12 months to July, the value of the average home increased by an eye-watering 15.5%, to a new record high of £292,000.
The driving factor behind that rate of growth is ultimately the imbalance between supply and demand, with landlords often taking the role of pantomime villain here.
The argument goes that if owner occupiers weren’t having to battle against landlords for properties on the market, then prices wouldn’t rise so quickly, making home ownership a little more affordable.
Saving for a deposit while paying the rent?
However, another important factor in home owner affordability is the rate at which rents are increasing.
According to the most recent rental study from Zoopla, the average rent has jumped by £115 per month since last year, taking the typical rent to £1,051 per calendar month.
That’s the equivalent of more than a third of the average income of a single earner.
And that’s important because tenants, who often dream of home ownership, struggle to save sufficient deposits precisely because more and more of their monthly wages are being devoted towards rent (and the cost of living), rather than towards their deposit goals.
Supporting home ownership dreams when the landlord is a close family member
Family Buy to Let is where the property is bought on a buy-to-let basis, and then let out to a close relative – a child or sibling, for example.
It’s a product that we are seeing an increased interest in at Mansfield Building Society at the moment, from borrowers who want to support their loved ones in finding an affordable way towards independence and eventually onto the housing ladder.
Typically, rental income in the affordability assessment needs to be at least 125% of the monthly mortgage interest, calculated at 5.5% or 2% above the pay rate, whichever is higher.
However, where we can offer Top Slicing, the rental income requirement becomes 100% of the interest calculated at the product pay rate, opening the door to more affordable rental costs for the tenant.
This move reduces the need to pass on a higher rent and can only boost the chances of the tenant being able to save the deposit needed in order to get onto the housing ladder themselves.
More than just an investment relationship
If you are renting from a stranger, then their priority will be maximising or protecting the profit from their investment, which is understandable. However, the situation is a little different when the landlord is a family member – they will have closer ties to the circumstances of the tenant, since they are a loved one, making them less likely to view the relationship primarily as a financial one.
It’s worth noting that this isn’t solely a way to help loved ones who are looking to purchase their own home though – we’ve also had cases where the borrower wanted to buy a home for their parent to rent from them, providing them with a secure property for a long tenancy, while the borrower enjoys an additional property asset.
Working with flexible lenders
Family buy-to-let is not the sort of product that you will find on offer from many mainstream lenders, since it doesn’t fit with the more prescriptive, black-and-white lending approaches adopted by the big names. Yet, this lending can be a real opportunity for both landlords and aspiring homeowners.
The tickbox attitude provided by some lenders leaves many borrowers with perfectly good circumstances unable to access the funds they need, irrespective of their property plans.
We take a different approach at Mansfield Building Society, instead focusing our efforts on really getting to grips with an individual case and applying common sense, rather than algorithms.
With the choppy waters ahead of us, I am confident that more brokers will come to appreciate the flexible and open-minded way in which we operate.
Tom Denman-Molloy is intermediary sales manager at Mansfield Building Society
