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Spend & Save

Renting holds upper hand as passion cools

Since the property bubble burst, the great British passion for home ownership has been sorely tested. As house prices have spiralled inexorably down, the cost of borrowing has risen steadily, rendering bricks and mortar anything but a profitable investment.

The alternative is to rent. Yet what looked like being a sea-change in dwellers' attitudes in 1992 failed to become an established pattern, in spite of powerful economic arguments in favour of renting.

In 1992 it was not uncommon for mortgage lenders to report long-term borrowers simply abandoning their properties in favour of the private rented sector. But John Moss, arrears and possessions manager at Woolwich, said: "Thankfully this has not become an established social trend, though it does still happen occasionally."

There is no doubt the market has changed markedly in response to the recession. Potential home buyers are more reluctant to commit themselves to large, long-term debts in a labour market increasingly dominated by short-term contracts and part-time work. People are also retiring earlier, so the number of years in which they can pay off a mortgage is declining.

When the Government abolished rent controls on new lettings in 1988 it intended to encourage private investors to set up in the rented market. But, according to David Gilchrist, general manager and group secretary of Halifax: "There is still a dearth of good-quality, affordable rental accommodation."

The growth in renting has hardly been dramatic since the height of the property boom when 7 per cent of the house market was in rents. Despite rising home loan rates and the steady erosion of mortgage tax relief, only 8-9 per cent of Britain's housing market is in the private rented sector, against about 15 per cent in Germany. Of the EU countries, the UK comes seventh in the renting league. We are also below Australia and New Zealand, but similar to the US and Japan.

But there is one important difference between the UK housing market and other economies - the age at which people become owner-occupiers. In Britain, far more people in their early- and mid-20s become ownersoccupiers than in virtually any other economy.

Not surprisingly, the Council of Mortgage Lenders, the main lobby for banks and building societies in the lending arena, is still convinced that home ownership represents the best long-term option for most people.

Adrian Coles, CML director-general, says: "Houses and mortgages remain more affordable now than at any time in the past 20 years." While mortgage lenders would welcome an overall increase in the maturity of those coming into owner occupation, "this does not mean people in their early 20s should not buy houses. That is clearly ridiculous, given the different rates at which people mature and settle into jobs and relationships. But there may well be long-term advantages in reviving a private rented sector that appeals to young people looking for a period of independence before settling down as an owner-occupier."

Some lenders are keen to prove they are genuinely interested in an active rental market. Portman Building Society operates a residential letting service in the south of England. Carol Bowman, residential lettings manager, says: "We are seeing a very buoyant rental market at the moment, but we could always do with more properties."

Ms Bowman operates in and around the Swindon area. "I think some people may regard renting as dead money. But for a first-time buyer looking to save for a deposit, or a family which has just moved to a new part of the country and cannot immediately find somewhere to live, renting is a very viable option."

Portman is finding that many also look at renting as a long-term option rather than just a stepping-stone to ownership. "Some people have been renting our properties for the past three years."

But others are not finding the rental market to be as viable. Woolwich Building Society has no further plans to develop its subsidiary, Woolwich Assured Homes, which offers rental properties in south-east London, north Kent, East Sussex, Croydon, Harlow, Chelmsford, and Birmingham at rents of £400 to £600 a month. The company has about 350 homes of two- to three- bedroom houses and flats on its books.

And after 11 years of trading, Woolwich is stopping new buildings from Woolwich Homes, its social housing subsidiary.Richard Groom, managing director of Woolwich Homes, said: "Moving out of the new homes market is a strategic decision. Although successful, property development has always been peripheral to our main activities."

Halifax is still looking for the housing market upturn that it believes will stimulate both ends of the market. Mr Gilchrist says: "We are waiting to see the market move, which should happen in mid-1996, according to our forecasts."

In the past year, Halifax, Britain's biggest mortgage lender, has lent about £100m to social housing projects. ``This is a useful means of supporting private rentals when there is no prospect of any initiatives," says Mr Gilchrist. "But the yield on renting is still too low for a lot of private investment there."

With the Government still undecided about the future of housing policy, households have no clear guidance on whether to rent or buy. Renting offers flexibility for those who seek mobility and also a greater choice of homes. Many stung by the property collapse have ended up letting their devalued properties and renting the home they want.

With interest rates yet to peak and the Government apparently committed to a phased withdrawal of tax relief on owner-occupied dwellings, home owning will become more expensive. Unless households see a real pick-up in the housing market on the horizon, the trickle towards the private rented sector may become a flood.