Renting is often labelled as “dead money”, but the British obsession with home ownership seems to be waning in the face of impossible odds.
A recession and housing crisis has left its mark on “Generation Rent”, many of whom have given up on ever owning a property. Some say they aren’t willing to make the necessary sacrifices, while others just don’t have the money. But what are the wider implications of this shift in attitude?
The latest Halifax Generation Rent Report paints a very different picture to the first survey back in 2011 when 20 to 45-year-olds were keen to buy but couldn’t afford to, or feared rejection from lenders.
A resounding 86 per cent of would-be first-time buyers (FTBs) now say they aren’t willing to sacrifice the quality of rented accommodation to save on rent and get a deposit together. Almost half (48 per cent) agree Britain will become a nation of renters within the next generation, and in the youngest age group, 23-27, one in five say they simply have no desire to own a home.
Duncan Stott, from the campaign group Priced Out, says: “The fundamental barrier to home ownership for the 3.5 million taxpayers trapped in renting is the sheer scale of UK house prices. The latest figures show that the average first-time buyer purchase is now £192,000, an extraordinary £18,000 higher than a year ago.”
Prices in the UK rose by 9.1 per cent in the year to February 2014, according to the latest Office for National Statistics (ONS) figures. A lack of available and suitable property has hit FTBs particularly hard – the ONS says they paid 10.5 per cent more in February 2014 than they did the year before, against an increase of 8.6 per cent for owner-occupiers. Help to Buy has enabled more than 16,400 people to get on the ladder, but even with the chance to buy with a 5 per cent deposit, prices are beyond many buyers, particularly in big cities.
Richard Sexton, director of e.surv, the chartered surveyor, says: “If not controlled and addressed, this could in due course start to push first-timers back out of the marketplace. Help to Buy opened the door to the market for thousands, but the only way to ensure that entry remains open is to ... build more affordable homes.”
Adding even more pressure, the average monthly rent for a typical, three-bedroom house rose from £652 in 2009 to £769 in 2013, according to Halifax figures, which is making it virtually impossible for some tenants to save enough for a deposit.
It’s one thing to implement widespread changes to help people get a foot on the ladder, but if rent takes a huge proportion out of an ordinary earner’s wage, some might never get started. Long term, this could change the profile of the market completely.
Craig McKinlay, mortgages director at Halifax, says: “It seems people are beginning to accept a lifetime of renting and this would not only change the way the property ladder looks in the future; it could even bring into question whether or not it will exist at all for some people.”
Campaign groups warn that there are troubling social implications in a widening gap between those who can and cannot afford to buy a home, not least because many people use property as a way to prop up their retirement. Ultimately, if there aren’t any FTBs funding new construction, the whole housing market could once again grind to halt. And, of course, more people will be stuck renting, which can be expensive and unstable, particularly for families who need the security of owning a home.
Landlords increasing rents are only half the story; complaints against lettings agents have jumped 22 per cent to almost 14,000, according to the latest annual report from the Property Ombudsman, with some cases revolving around tenants’ deposits. Add to the list the fact that standard tenancy agreements only last for six or 12 months, and home ownership can naturally be the more appealing option.
However, it is worth noting that the number of loans taken out by FTBs is actually rising. New data from the Council of Mortgage Lenders shows that loans for new buyers reached 22,200 in February 2013, an increase of 41 per cent compared with the same month last year.
Greater confidence has returned to the property market and, with interest rates still at record lows, mortgages are appealingly cheap.
Access to higher loan-to-value lending has also improved, thanks to government schemes. Plans to extend Help to Buy until 2020 should persuade more FTBs to make their move and fuel more housebuilding – something Britain needs if it’s going to keep a lid on house prices.
But were we to become a nation of renters, it may not be such a bad thing if it leads to stronger protection for tenants. Some positive steps have already been taken, including a legal obligation for all letting agents and property-management agents in England to be members of an approved redress scheme, which is expected to come into effect later this year.
If we could model our rental market on somewhere like Germany, which has the highest proportion of people renting in the EU, tenants could benefit from good-quality rental accommodation, regulated rents and secured tenancies.
Mr Stott says: “We are urging the Government to introduce longer leases into the private rented sector, which would start to make renting a real alternative to ownership and help take away some of the desperation to buy from the housing market.”