Kate Eales
Head of Regional Residential Agency
Despite the Government’s best attempts, Britons seem to be embracing the tag of ‘generation rent’.
While homeowners still outweigh renters, this won’t last long if a PwC report is to be believed. It predicts that by 2025, 60% of the UK will rent, with just 40% owning their homes. This would be a complete U-turn on figures from 2000 in which it was 60/40 in favour of homeownership.
Demand for housing in the private rented sector (PRS) grew from 9% of housing stock in 2001 to 16.5% in 2011.
And this trend towards renting is one we’re starting to notice here at Strutt & Parker – we’ve recently found that our average tenancy length in our Chelsea office is a massive 49 months – over four years. Across the country, tenancy lengths are starting to creep up, from 17.9 months in 2010 to 19 months on average in May 2016, according to ARLA figures.
Our recent Housing Futures report found that it’s not just in cities that more people are looking to rent - 10% of those who want to move to a village anticipate living in a private rental unit, up from 1% in 2013.
Cheaper to rent?
It might not seem like it, but in many cities it’s actually now cheaper to rent than to buy, on a monthly basis. In places like Cambridge, London and Brighton, the cost of renting per month is less than mortgage repayment on a home. In the capital, it’s 46% more expensive to buy than rent per month, according to Zoopla figures.
"Despite the very high rents of London, and relatively high rents of Cambridge, Brighton and other southern cities, getting onto the property ladder is still proving tough," said Lawrence Hall of Zoopla.
It’s not just big southern cities either – it’s cheaper to rent than buy in Swansea, Wigan, Aberdeen and Rotherham as well. The site found that this was the case in 52% of locations across the UK. And this didn’t even include additional buying costs like legal fees, stamp duty or deposits, which can easily run into the tens of thousands of pounds.
Less effected by market changes
Many buyers not only see a house as a place to live, but also as an investment. Even if they’re not planning on leaving, its value will still be passed down to children or other next of kin.
But as with any investment, the market can go up or down. And while interest rates are at historic low levels, making borrowing to buy a home appealing and affordable, they won’t always stay like this. If interest rates do rise, it can seriously hit mortgage payments.
These are problems that renters don’t face. Rents can move with inflation rates, but they can’t be pushed up by excessively large amounts. Renters also aren’t faced with the task of having to get a good price for their home when they decide to move. They can simply leave it behind.
Additional benefits
Running a house can be expensive. From general wear and tear repairs to home insurance, these costs can run into the hundreds of pounds per month.
If you’re renting, you can avoid many of these costs. Your landlord is obliged to make sure your water is running, the heating is working and, generally, that your property is fit to live in.
But many modern renters are looking for more from a new property. Spears Wealth Management has discovered that wealthy, shorter-term renters are seeking homes with services normally found in private members’ clubs, for example properties that feature ‘butler buzzers’ in every room.
These ‘add ons’ do come at a cost, but as they’re often spread across the building, meaning it’s cheaper than having to pay for the service yourself.
Flexibility
The days of growing up and living in the same town your whole life are a distant memory for many property hunters. We’re a much more mobile society, and what is good for us one year might be the wrong thing the next.
Whether you’ve got to change town for a new job, are expanding your family or are looking to downsize at any point, moving often when you’re a homeowner can be costly. Just think of the cost of legal fees and stamp duty every time you buy and sell.
With renting, you have much more freedom to move at will. Your notice period will probably be the same length of time it’d take to market and sell a property and you won’t be liable for legal fees or stamp duty with every move.
Invest elsewhere
One thing a lot of Millennials are saving for is their deposit. Figures from Halifax put the average first time buyer deposit at over £90,000 in London. HomeLet puts the average rent in London at around £1,500 a month.
Assuming your new landlord asks for this rent, plus a month’s rent as deposit – this would cost £3,000, leaving you more than £87,000 in the bank. If you put this in a 3% investment account over the lifetime of a 25 year mortgage, it’d be worth over £180,000 at the end of the period.
You might argue that your house price will go up more in that time – but remember you’ll also be paying off the interest on your mortgage as well as all those repair fees mentioned above.