Are We A Nation Of Renters?

You may have heard in the news many conflicting stories about the state of the residential and rental markets. On the one hand we're told that there has been a rise in the number of people suddenly able to step up onto the property ladder for the first time, thanks to Help to Buy and a recovering economy. This has started to have a knock on affect on the rest of the market, freeing up homeowners to move into their second, third property and so on. On the other side of the coin we hear that the UK is seeing a shift in attitudes and the old ideal of home ownership is being replaced with a landscape of life-long renters.

So, what are we to make of this? From what we can tell, the statistics we've found do a little to clarify the picture:

  • The number of first time buyers in UK able to secure mortgages increased by 25% from July 2013 to 30,200 this summer
  • The number of households in the private rented sector has risen 50% between 2007 and 2013
  • Rental demand has risen at the fastest rate in two years; on average five tenants are now chasing each rental property, up from 4.2 tenants in August 2013
  • Currently rents are already on average 40% of household expenditure - 38.2% of households gross earnings
  • Almost 50% of under 35 year olds now rent privately

So, while there are more first time buyers, it's still only a minority who can afford to buy. Tellingly, the average income of people taking advantage of Help To Buy is £45,000

Any FTB will need to save up at least a 5% deposit, even with Help To Buy. The improving economy and, arguably, Help to Buy itself has pushed up houses prices in some regions, making it even harder for buyers to save up enough of a deposit. Even those who can may still get turned down for a mortgage due to stricter lending rules since the Mortgage Market Review came into effect last Spring. The rules include looking at whether the buyer would still be able to afford mortgage repayments were interest rates to go up, as well as looking in detail at all household expenditure.

Though not all regions and not all types of property have been affected by the ripple effect of rising house prices in London and the South East; we've found that much of the housing stock of £150k+ within Wakefield, where we operate, are broadly where they were three years ago price-wise. Probably about 25% of the buyers we speak to are first time buyers - those who have saved up a deposit and got their agreement in principle from the mortgage lender.

It's a bit of a simplistic view but, basically with more able buyers around, house prices start to go up. As house prices go up, less people can afford to buy, so they end up renting. As demand for rental property goes up, so do rents. As rents go up this means many of the 4 million households who currently rent but who have aspirations to buy have to continue renting as they just can't save up for the deposit. So house prices start to fall again.

But an interesting question is - do people actually want to be a homeowner anymore? After all, renting does offer many advantages:

  • flexibility to relocate if they need to for their career
  • convenient - any major repairs not their problem
  • knowable costs - repairs don't need to be budgeted for, no worries about interest rates affecting a mortgage

We certainly hear a lot in the news about Generation Rent: those earning too much money to qualify for social housing but too little to purchase a property. At Trinity many of the tenants who come to us are on a decent salary and see renting as a mid-term option before buying somewhere, but several years later are still in rented accommodation. Life gets in the way - they have children, go on holiday, get married, and the aspiration of buying gets pushed into the background.

Maybe because of this a considerable number of our tenants go to some lengths to put their own stamp on a property - putting in new flooring, for example, at no small financial cost, suggesting an intention to put down roots, at least for the foreseeable future.

What could we expect to see in the coming years? Interest rates will not stay at 0.5% forever, and Help To Buy will end, so unless wages start to rise in any meaningful way more people will have no choice but to rent. If this happens people might start asking for longer tenancies, so they have the security of knowing they can stay in the same property for life. Generation Rent may well become a reality.

Sources:

The Council of Mortgage Lenders (CML)
Property Professional magazine July/Aug 2014
Savills
Countrywide Residential Lettings Index

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Published on 29 October 2014

Source Trinity Sales Wakefield

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