Forget about mortgage debt – become a happy renter instead

First-time buyers are suffering, and mortgage rule changes could lead to yet more misery, so perhaps it's time to consider the benefits of being a tenant, writes Laura Howard

George Osborne's recent pledge to dismantle the Financial Services Authority and hand greater powers to the Bank of England could be the final nail in the coffin for the nation's first-time buyers.

Under the Chancellor's new arrangement, the Bank would have the authority to place a cap on the amount that mortgage lenders could hand out to borrowers – and some fear this could mean maximum loans of 75 or 85 per cent of the property price.

Ray Boulger, the senior technical manager at broker John Charcol, insists that the move would particularly hurt first-time buyers, by denying them a mortgage that they could afford or driving them to finance part of it with an unsecured loan or a credit card. "And this is a group that the Government claims it wants to help," he says.

Things are sticky for first-timers already. Since the banking crisis hit in 2007, those yet to get on the property ladder will need to raise at least a 10 per cent deposit – a sum that, in spite of the recent housing crash, is often unobtainable. For example, the average house price is now £169,162 according to Nationwide, following a 0.5 per cent monthly rise.

Even if average first-timers can muster up the required £17,000 and qualify for a mortgage on the remainder, they will pay through the nose in interest. According to Moneysupermarket.com, the average interest rate on a 90 per cent mortgage is currently 5.83 per cent, compared with 4.2 per cent for a loan of 75 per cent of the purchase price.

"This translates into an extra £144 each month for someone buying a £150,000 home, which is already a major impact on first-time buyers' monthly budgets," says Hannah-Mercedes Skenfield of Moneysupermarket.com. But she adds that a 75 per cent loan-to-value cap on mortgages would make things worse still. "We have grave concerns about this possibility – it seems like a new government is trying to fix a complex problem with a blunt instrument."

High property prices combined with increasingly obsolete mortgages will result in a generation of the "haves and the have nots" when it comes to property, says Helen Adams, director of FirstRungNow.co.uk. "Generally speaking, only those with wealthy, generous parents, or very well-paid jobs, will be able to step on to the property ladder. Those who can't get a mortgage and don't inherit a property may well be committed to a lifetime of renting."

Evidence of this is already under way. Figures from the Association of Residential Lettings Agents (Arla), the industry body, reveal that there were 3.8 million privately rented homes last year, compared with 2.4 million in 2001.

A recent report published by the National Landlords Association (NLA) has also revealed that as many as one-in-five households could be renting from a private landlord in the next 10 years. NLA spokesman Alan Ward said: "At a time when government funding is strapped, it is private investment that will enable essential housing needs to be met. Rather than being seen as a last resort, private tenancies are becoming the choice of many people who need the freedom to choose homes where they need and for as long as they need."

There are several clear benefits to long-term renting, according to Peter Bolton King, the chief executive of the National Federation of Property Professionals. "Unlike house prices, rents have risen almost exactly in line with the average wage since 1994 – which makes renting more affordable in spite of low mortgage rates. Tenants will also escape the cost of repairs and maintenance to their homes, as this will fall to the landlords, and have total flexibility to move."

If you are looking to stay put for the long-term, Assured Shorthold Tenancy Agreements (ASTs) – the contracts used in the private rented sector – can state any duration of tenancy agreed by both landlord and tenant. But an AST lasting several years should incorporate break clauses which will allow either party to exit or continue the arrangement, says Mr Bolton King.

Tenants should also be prepared for landlords to use break clauses to hike the rent up – especially when the contract spans several years, he adds. However, such raises should typically be in line with the Retail Price Index (RPI) measure of inflation.

Economies of scale will apply though, which means you can use the longer-term tenancy as a negotiating tool to barter down your starting rent. "Especially for landlords with larger portfolios of property, long-term tenancies are attractive," says Mr Bolton King. "It's expensive and time consuming to keep switching tenants."

Since 2007, deposits – which typically amount to between four and six weeks' rent – will be held by the lettings agent and protected by the Government's Tenancy Deposit Scheme. According to figures from the TDS, the average deposit amounts to £1,000, but don't expect to earn any interest on it – even if it's being held for 10 years, says TDS spokesman Malcolm Harrison. "The lettings agent will probably argue that the interest barely covers the administration costs of holding the deposit in a ring-fenced account. Or if they do pay interest, they might charge an administration fee."

A thorough inventory – that states what furniture and appliances are in the property, and in what condition, when your tenancy begins – becomes especially important with long-term renting. "With the best will in the world," says Mr Harrison, "who is going to remember what was and wasn't there five years later?"

Staying in any home for several years will mean it needs to be redecorated and, as a tenant, you will be entitled to do this. However, the AST is likely to state that the property will need to be restored back to its original condition before you move out.

All tenants, regardless of the length of contract, will need to undergo a credit and reference check to ensure they are a reliable payer. Costs vary but, at a typical £50, this is one charge that will fall at the tenants' doorstep.

Bricks & torture: 'A mortgage would have cost £1,300 a month – renting is just £750'

Lucy Kemp, 29, and her partner, Dan Nash, 27, pulled back from the brink of buying their first home in Birmingham last month in favour of continuing to rent.

"We put an offer in at £210,000 against the £230,000 asking price and began looking for mortgages," said Lucy, a marketing account manager. "But only having access to a 10 per cent deposit, the cheapest deal we were offered was a three-year fix priced at 6.5 per cent. With bills, this would work out at more than £1,300 a month."

Instead, Lucy and Dan found a larger, more central two-bed apartment with en suite and terrace, available for rent at £750 a month. "The money we are not spending means we can continue having fun and that we have retained total flexibility to move to a house with a garden when the time is right."

Lucy was also worried about tying her money up in a dubious property market.

"If you buy an apartment, you can't extend it to increase the value – you have to rely on the market to increase or even hold its value – and I don't trust that at all."

Lucy and Dan are not worried that they have never been homeowners. "My mother only bought one house in her life but things are different now. We move around more so long-term renting suits us.

"Some people say renting is throwing money down the drain, but you have to pay to live, and it offers a whole host of other benefits."

Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before