We are a nation obsessed with owning property. Unlike our European neighbours, many Britons see renting a home as a short-term solution while we scrape together the cash to acquire our own pile of bricks and mortar.
A third of all UK tenants only rent their homes because they can't afford a mortgage, according to Axa. But the dramatic rise and even more dramatic plummet in the housing market means many would-be buyers are biding their time before taking the plunge into property ownership.
With repossessions on the rise and a greater proportion of split families than in the past, it is no wonder that the number of renters in the UK is soaring. But the financial reality of renting is shrouded in myth, and getting the facts wrong could have you spending thousands of extra pounds for the roof over your head.
Know your rights
Once a tenancy agreement has been signed, a number of statutes protect the parties involved, both personally and financially. These include The Landlord and Tenant Act 1985, The Housing Act 1988, The Family Law Act 1996 and The Protection from Eviction Act 1977.
Before you move in, there's the first month's rent and your deposit to pay. The good news is that, under deposit protection legislation from April 2007, your deposit can be held by a third party; even if it is not, disputes about getting your money back when you leave are now conducted on a more level playing field. More information on these protection schemes is available at www.direct.gov.uk/en/tenancydeposit. In the meantime, always get a receipt for all money transactions, one that includes relevant addresses and VAT numbers if you are dealing with a registered agent.
Once you're in your new home, your landlord can't turn up to your home uninvited, or allow other tenants to harass you, or prevent your friends from visiting. Nor can they offer you money to leave the premises in a break from your contract, or cut off utilities such as gas, water or electricity. As a legal tenant, you have the right to adequate living facilities: hot and cold water, drainage and toilet facilities, heat, electricity and ventilation.
This doesn't mean that your landlord is breaking the law by refusing to install that 52in plasma screen or redecorate the hall, but it does mean that if your home does not meet health and safety standards you may be able to take legal action.
Not all landlords have a legal obligation to provide fire alarms or carbon monoxide detectors, but they do have to ensure that there are no fire hazards in the property. However, if the property is multiple occupancy – defined as five or more people forming more than one household on one property – then alarms, extinguishers and escape routes have to be provided and maintained.
"There is a lot of folklore out there, but basically, tenants must always pay rent," says Steven Hilton of the National Landlords Association (NLA). "There are no circumstances which allow tenants to withhold their payments. But that doesn't mean a court wouldn't sympathise with a tenant who believes they were right to withhold rent in certain circumstances. There may also be situations when it is appropriate to negotiate a discount to rent while repairs are taking place, such as damage caused by an adjoining property."
But be warned: if the property becomes uninhabitable, due to fire or flooding, for example, your landlord is not obliged to find you alternative accommodation. According to the NLA, this is because if the property doesn't exist, the tenancy agreement based upon that property also ceases to exist. You will get your deposit back, but otherwise you're on your own.
It is also worth noting that if you are lodging with your landlord – a more attractive proposition following the Government's tax-efficient rent-a-room scheme – a lot of the legal protection goes out of the window. Landlords do not need a court order to evict lodgers, nor do they need a written tenancy agreement, and a lodger's notice period can be as short as a week. Most consumer groups urge lodgers to draw up a written agreement with their landlord.
As a tenant, you can be evicted if you break your contract by failing to maintain the property, or if you refuse to allow essential maintenance or repairs to be done on or in the property. Your landlord can also apply for legal permission to kick you out if you fall more than two months behind on your rent payments.
And according to Axa, the number of private renters slipping into arrears is rising. Some 13 per cent of renters have gone into arrears in the past year, over half of these (7 per cent) in the past three months alone. Half of all private renters are concerned about being able to afford their rent going forward.
"Over a third of people privately renting are doing so because they can't get a mortgage at the moment," says Mike Keating, a managing director at Axa. "On the surface of it, this looks like the rental market should be buoyant. But if you consider that many of those renting may be struggling to make ends meet, it's certainly not all good news for buy-to-let owners. The cost of living is rising rapidly and average earnings are not keeping pace. And while rental rates appear to have dropped marginally in the last few months, it's going to continue to be tough for many tenants."
Whose debt is it anyway?
Crucially, you are not responsible for the property owner's payment of their mortgage or any of their debts. Only the person whose name is on those loans can be pursued for payment, not you as the occupant of the property. But if the owner has gone bankrupt, and the property is repossessed, you will be evicted. Such repossessions are up compared to this time last year, according to the homelessness charity Shelter. Between the first half of 2007 and the first half of 2008, the number of buy-to-let mortgages ending in repossession rose by 100 per cent, compared to a 48 per cent rise across the mortgage market as a whole.
"These figures show that the shadow of repossession is no longer just cast over homeowners, but also thousands of innocent renters who have no idea how close they are to eviction," says Adam Sampson, Shelter's chief executive. "Sadly, the impact of repossession can be even greater for tenants, who, despite paying rent on time, can find themselves with very few rights. The first they even know about it is when the bailiffs start banging on the door.
"Mortgage lenders must take responsibility and make sure they inform both owners and tenants when taking action to repossess, so tenants are aware they are about to lose their home. The Government must step in now to protect people who may find themselves homeless because their landlord's property is being repossessed, by making sure courts treat tenants fairly and give them enough time to find a new home."
The price is right: Why renting can save you money
In this period of falling house prices, tenancy makes far more financial sense than you might imagine. Far from wasting money on rent, people who are delaying the purchase of a property are saving as much as £10,000 to £15,000 – even with the cost of rent taken into account. And that's before repairs, maintenance, insurance, appliance upkeep and the like – costs that add up for home owners but that tenants don't have to worry about.
"Home ownership continues to be a strong aspiration in Britain," says Louise Cuming, head of mortgages for the price comparison site Moneysupermarket.com. "However, all the evidence of plummeting house sales and falling mortgage completions shows that currently people are hesitating before taking the first step. Some of this is undoubtedly down to a huge lack of consumer confidence and the current difficulty in obtaining mortgage funds. However, mathematically it may well add up."
According to Nationwide, house prices have dropped 15 per cent over the last year, a trend that specialists say is unlikely to alter until the end of 2010. The average price is now £158,872, but in two years, assuming a 30 per cent reduction, that figure could be around £111,200. That means renters would save a cool £47,000 by delaying a house purchase by 24 months. This represents a saving of £1,456 per month, so if you can rent a property for less than that amount, you would be better off waiting.
Admittedly, property prices may not fall anything like that far. But sparing yourself the costs of maintenance and mortgage interest is no small savings. Repairs on an older property can run into hundreds if not thousands of pounds a year, especially if the property is in need of a new boiler or some structural repair. As the tenant, this is not your financial concern. Likewise, if you buy a property for the average current price of £159,000, laying down a 10 per cent deposit and borrowing the rest, you'll be paying around £1,000 a month in mortgage payments. You might feel as though this is much better than putting £1,000 a month into your landlord's pocket, but remember: around £800 of it will be interest. At least the rent that you're paying to your landlord means that you're off the hook for repairs and maintenance.
"Obviously, buying a house is often about lifestyle and getting a 'home' rather than financial considerations," Cuming says. "In addition, we cannot really predict how far house prices will fall, although there is certainty around the fact that the fall will continue at least in the short term. However, the message is: don't panic if you can't buy a house now, because you may well be better off waiting."