We explore the reasons why housebuilders should strategically focus their efforts on targeting renters, unlocking a golden opportunity in the current market.
Challenges facing housebuilders
It came as little surprise to anyone in the housebuilding industry when NHBC announced that new home registrations fell by a massive 53% in Q3 2023 compared to Q3 2022. Housebuilders braced themselves for a subdued Autumn and Winter, scaling back their projects and investing in less land. Barratt Development stated that they would build 20% fewer homes this year and suffered from double-digit drops in annual profits. Meanwhile, Taylor Wimpey stated that its profits would likely halve.
Housebuilders are seeing demand for new homes falling. One of the biggest challenges for potential homemovers is mortgage costs. For many, buying a property is simply unaffordable right now. The Bank of England reported that mortgage approvals for house purchases fell by 32.5% in September compared to the same month in 2022. Housebuilders are also grappling with low margins and a lack of Government assistance since the Help to Buy scheme stopped.
However, it’s not all doom and gloom. We need to remember that we are going through a transition period. Consumers have been basking in 2% interest rates for a long time now, so it came as quite a shock when they started rising. Consumers need to adjust to the higher interest rates. Whilst many people are holding off buying property in the hopes that the rates will drop, they’ll soon come to terms with the fact we’re unlikely to see those low rates again for a long time. Those holding off will eventually bite the bullet. Whilst the media portray a devastated property market, there’s still a lot of movement occurring. The property market isn’t in free fall. In fact, TwentyCi reported that it expects to see over one million home moves in 2023.
We’re not denying that it is a challenging time, we’re just highlighting that people are still motivated to buy. So, for the housebuilder with a project to sell out, it’s all about finding those movers who are still in the market for a new home. Marketing the right way becomes even more essential. In our latest Property and Home Mover Report (PHMR) for Q3 2023, we identified that owning a property is now more affordable than renting in almost the whole of the UK. We will discuss in this blog why, therefore, targeting renters opens up a big opportunity for housebuilders.
Why should housebuilders target renters?
Rent prices are at a staggering average of £1,829 per month. This is a jaw-dropping increase of £500 per month since Q3 2019. It’s little wonder then that in our latest PMHR, we revealed that a first-time buyer is financially better off buying compared to renting. Shelter states that if over 35% of your disposable income is spent on rent, then it is unaffordable. We analysed rental prices by region and found that all but one region In the UK can be considered unaffordable by this definition.
The rental market is challenging, to say the least. Alongside the eye-watering rental prices, demand is high whilst supply is low. Many landlords exited the market due to tax and regulatory changes. The ones who remained have passed the energy price hikes and interest rate rises onto the tenant.
With all the issues the lettings market is experiencing, home owning has become the more attractive option. This insight uncovers a key target customer for housebuilders to market to. The astonishing average letting price opens immense potential for renters to transition onto the property ladder. The elevated interest rates will not deter a renter who is already paying out a substantial part of their wage to their landlord.
Understanding the potential of the renter
Renters have always been a pool of potential first-time homebuyers. As they progress in their careers, many aspire to transition from renting to homeownership. With the instability of the lettings market, they are an even better target right now. Landlords exiting from the lettings sector leaves many renters with nowhere to live, especially with the low supply of lettings on the market. Many renters will desire to have that stability and security of a permanent residence, so they’ll currently be more perceptive to homeownership opportunities.
How to target renters
Understanding the barriers
Clearly, there are some hurdles that hinder renters from transitioning to homeownership, and the substantial deposit stands out as a primary concern. Many people consider buying their own home as financially out of reach. When marketing to this group, we recommend you showcase affordable housing options and suggest mortgage programs. Interestingly, Connells Group has recently announced its Rent-to-Buy scheme where consumers can live in the apartment for up to two years before buying it. The tenant will begin paying towards ownership without the need for a large deposit. After two years, the rent and contribution from the developer go towards the deposit of a 90% mortgage.
Whilst you may target existing homeowners by offering help toward stamp duty costs, for renters you can take the same approach as Bellway, who are offering up to £1,000 a month towards mortgage payments for a set period. These types of attractive schemes can be applied to encourage the renter onto the ladder.
Incentives
Increasingly housebuilders are making the buying process more attractive with offers or special incentives such as including flooring or free upgrades. Knight Frank reported that nearly 60% of housebuilders offer non-cash incentives to persuade hesitant buyers. You could capitalise on this by making offers specifically for renters and speak directly to their needs and challenges. So perhaps the renter currently lives in a furnished home and would be concerned about the price of white goods on top of their house move costs. They may appreciate white goods coming as part of the package.
Buying is a complicated process
Many renters are put off by the complex process involved in house ownership. Navigating through the property market, understanding mortgage options and managing the financial aspects is overwhelming. New House Builders should provide informative content to demystify the complexities of homeownership and simplify the process. You could partner with a business to put on educational workshops to focus on the transition from renting to buying. It can cover topics such as the benefits of homeownership, financial advice and the property-buying process. Providing mortgage advisor contacts and transparent communication can help encourage renters to take the leap to owning a home.
Highlight the benefits of buying over renting
Focus your marketing on showcasing the benefits to the renter of buying their own home. They will have the long-term financial benefits of homeownership where they’ll build up equity rather than paying someone else’s mortgage. They’ll also have the stability of their own home without the worry of their landlord selling up. Furthermore, they will have control over their living space, which means more freedom to personalise and make changes as they see fit.
Marketing is key
In your marketing, you can showcase the affordability of homeownership compared to renting. Breaking down the monthly costs may highlight to the renter that owning is within their budget. You can include some of the incentives discussed above in your marketing including price discounts or free upgrades.
Do you tailor your advertising to areas that have a large number of renters? How do you track these renters down? This is where TwentyCi can help you. We have the most accurate and comprehensive home mover data. Our database covers 99.6% of all residential property listings. We can provide you with the postal addresses of renters in any region of the UK. You can target people based on their current monthly rental payments or their social-demographic profile. If you prefer, we can even carry out the marketing campaign for you. We offer direct mail, mobile advertising, TV and email marketing campaigns that are proven to provide strong ROI. With our market insights, you can arm yourself with key information in your marketing to prove that renters are worse off compared to buyers right now. Get in touch if you’re interested in working together on home builder lead generation.
Final thoughts
Once consumers reconcile with the reality of increased interest rates and acknowledge the unlikelihood of a decrease, those delaying their moves will likely proceed. Some current homeowners are influenced by media speculation of a potential housing price crash, leading them to postpone their plans. Eventually, they, too, will come to accept that such a scenario is improbable and will stop delaying their move. Until then, you need to be clever with how you market to find leads. There is still a lot of activity in the property market. It’s just about finding those most likely to move.