The borrowing capacity of UK homeowners has reduced significantly over the last year, as soaring inflation, rising interest rates and escalating living costs continue to squeeze the disposable income levels of households across the country.

For first-time-buyers (FTBs) in particular, the challenges of saving for a deposit and getting a foot on the property ladder have never been greater, with recent research carried out by Nationwide showing FTB homes are now sitting at their least affordable level for 15 years, accounting for 39% of net salary.

On top of this, FTBs are also being hit with rising rents in the private rental sector, as affordability pressures caused by rising borrowing costs, EPC regulations and tax relief changes in the buy-to-let (BTL) sector, place a stranglehold on landlord margins, forcing many to sell up or increase monthly rents.

This is leading to a vicious cycle of escalating costs and lower rental stock as more tenants compete for fewer but more expensive properties, prompting would-be FTBs to re-evaluate their plans and see their dreams of homeownership fall further out of reach due to increased affordability constraints.  

Recently, as the financial markets have begun to settle, lender appetite has started to return, and there has been an uptick in the number of lenders returning to the market with more attractive mortgage deals and lower fixed rate products than at the end of last year.

This is particularly evident in the BTL sector where lenders are introducing new fixed rate deals with higher product fees in order to keep a lid on interest rates but make the rental serviceability and stress testing measures work in favour of landlords.

This is welcome news for those landlords looking to stay in the market as this pricing creativity enables them to refinance onto a better deal, continue to service the mortgage and stay in the BTL market. It also means that tenants are less likely to be affected by higher rental costs or homelessness as a result of their landlord being squeezed on margins or forced to sell.

According to data from Rightmove, there were 26% fewer homes available to rent in Q3 2022 than the pre-pandemic average, while monthly figures from RICS shows that demand from prospective tenants nationally has increased every month since May 2020.

This drop in supply is doing little to help the FTB market, as more disposable income is being spent on rent, reducing the ability of FTBs to save for a deposit. The fact is, landlords play a vital role in the UK’s housing market and should be encouraged to stay in the private rental sector as forcing them out of the market is actually hurting those hoping to eventually buy a home of their own.

In many cases, it is actually the smaller accidental landlords that are being forced to relinquish their properties due to the red tape and financial constraints currently being seen in the market. Many of these homes are then being snapped up by professional landlords, which only serves to reduce the options for FTBs even further by creating a greater supply for investors.

If we are to truly help FTBs in their bid to get onto the property ladder, then the government needs to stop demonizing landlords and realise that there has to be some level of respite given to help them tackle the pressures they are facing and prevent them from exiting the market.

The recent flurry of activity from lenders re-entering the market with increasingly attractive deals has helped to alleviate some of the current affordability constraints faced by landlords, but more needs to be done by the government to drive up rental stock, either through short-term policies to help landlords ride out the current affordability squeeze or through effective housing policy and the creation of new homes.

The government needs to act fast to ensure that the short supply of homes for rent does not dwindle even further, as it is only by increasing supply to meet demand can we drive down rental values, help address the affordability crisis in the UK’s housing market and present aspirational FTBs with more opportunities to buy their first home.

Hiten Ganatra is managing director of Visionary Finance