07 October 2020
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Prime Minister’s promise to transform ‘generation rent’ into ‘generation buy’ prompts reaction from protection experts
Speaking yesterday at the virtual Conservative Party conference, Prime Minister Boris Johnson promised to increase the number of 5% deposit mortgages available to first-time buyers, while also making them more affordable with longer-term fixed rate deals.
Mr Johnson described the recent trend that has seen the number of homeowners under 40 fall dramatically, leaving them to "pay through the nose in rent", as "disgraceful".
Bank of England figures showed that the overall number of mortgage approvals reached a 13-year high in August, however recent analysis from Zoopla has shown the number of first-time buyers has dropped over the past two months, despite an initial surge when the English housing market re-opened in May following three months of lockdown.
Despite a Stamp Duty break on properties worth up to £500,000 until 31 March next year, the number of first-time buyers is predicted to fall during the rest of this year and into 2021, unless availability of mortgages with 10% or less deposit increases.
Flexibility
Boris Johnson's pledge has led two leading protection industry thinkers to welcome the prospect of more people under 40 taking out mortgages, as both a boost to the economy and an opportunity to trigger meaningful conversations about income protection (IP).
"Boris Johnson's call to arms regarding a transformation from generation rent to generation buy has certainly sent the cat furrowing its way into the pigeons!" said Roy Mcloughin, associate director at Cavendish Ware and co-chair of the Income Protection Task Force (IPTF).
"Politics aside, it could have huge ramifications for the housing market which should translate positively into protection. Income protection has the distinct advantages of agility, adaptability and flexibility which are all crucial in such a transformation.
"That is because it is the protection policy that links to earnings and thus clients moving from 'generation rent' to 'generation buy' are clearly wise to have IP central to their needs. Sure the numbers [of people this impacts] may not be as revolutionary as some would claim, but that's missing the point perhaps? IP is appropriate to the growing numbers that are ‘generation rent' but equally appropriate to a new wave of ‘generation buy', and in a situation where sum assured's need to change this product has more flexibility than any. So advisers can be safe in the knowledge that IP should begin a protection conversation rather than end it and that it is relevant to renters and buyers alike."
Mcloughin added that the ‘generation buy' vs 'generation rent' debate will be a hot topic over the coming months, suggesting that advisers should be ready to have relevant protection-related conversations about it with clients.
'Ring-fence'
Matthew Chapman, MCAB founder and adviser for Plus Protect, added: "One of the less obvious advantages of IP for renters is that it helps to ring-fence the policyholders credit score and deposit funds during any period of incapacity - both of which are essential criteria for the homebuying process. IP is therefore more than just a form of income replacement, it enables tenants to build the financial security and resilience they need to move from being a tenant to becoming a responsible homeowner."
He described Boris Johnson's pledge to 'generation rent' as "encouraging", but said "this doesn't change the fact that the financial resilience conversation should already be taking place between advisers and those renting their homes.
"More needs to be done to provide renters with access to protection advice during such a crucial transitionary period in their lives. Perhaps through signposting initiatives and partnerships with letting agents or better still, at government level given the PM's new pledge."
