Europe's for rent, so why aren't we?

For first-time buyers-to-be in high-cost areas, the urge for a home of your own has to be put on hold

Two-thirds of Germany does it; so does half of Austria. And, as interest rates on mortgages rise again, it is growing in popularity in Britain, too. Renting a home is on the increase, says the National Association of Estate Agents (NAEA), which reports that more of us are now living in rented accommodation and staying longer.

The main reason is affordability. The average price of a British home rose 23.4 per cent last year to £124,770, the mortgage lender Halifax says, while the average income grew by just 3.2 per cent.

First-time buyers are having to wait to afford a home or, if they wish to live in a particular area, abandon the idea of buying. John Heron, managing director of Paragon Mortgages, says: "The rental market is awash with people in their twenties and thirties delaying their first home purchase."

The NAEA says the proportion of sales of homes to first-time buyers fell to 16 per cent over April and May of this year, compared to a 2002 average of 25 per cent. Melfyn Williams, president of the NAEA, says: "Affordability is the motor, but we are seeing other trends. People are renting because the social stigma of not owning is no longer there; because it allows them to live in areas and homes they couldn't afford to buy, and because they want to be more mobile."

Emma Newbery, 26, an analyst at the London-based media firm Cantos, says: "I am renting in Greenwich, south London, in a flat overlooking the Thames. I could never afford to buy my place and I would have to take a big step back in quality if I was going to buy. But I would like to buy eventually. A friend and I share the flat and we pay £1,200 a month. I know it is money we are frittering away, but getting that first step on the housing ladder in London is increasingly difficult."

Renting, rather than buying, is nothing new in a European context. Some 59 per cent of Germans rent their homes, as do 50 per cent of Austrians and 45 per cent of the French. But we British have been resistant; only 33 per cent live in rented homes in the UK.

Mr Williams believes that number will rise by 5 per cent and level out. That is good news for landlords. The Association of Residential Letting Agents (ARLA) recently noted a "severe oversupply of rental property", particularly in London and the South-east.

John Goulding, a spokesman for the not-for-profit National Housing Federation (NHF), says an increase in the UK's willingness to rent could be good news for families. "For many mid- and lower-income families, the economics of renting make more sense, but they don't consider it."

The NHF says a two-bedroom home, worth £150,000, costs an average of £232.68 a month to rent from a housing association. A 25-year mortgage on the same property at Nationwide's standard variable rate of 4.64 per cent, with a deposit of 5 per cent, would cost £803.43 per month.

Janet Hart, 67, an artist from Kensington, west London, has been renting an apartment from the Kensington housing trust for 17 years. She says: "I am paying far less than I would if I bought and I don't have the hassle of owning and don't have to allocate any money for maintenance." Mrs Hart pays £368 a month for her three-bedroom apartment, which she thinks would cost £350,000 to buy.

But for most people the dream of owning their home continues to hold a strong allure, with good reason. A study by ARLA found the average, privately owned rental apartment, worth £177,900, costs £817 a month. A mortgage for the same property, based on the Nationwide's 4.64 per cent, costs only marginally more, at £952.87 per month, and will leave you with a hefty asset at the end of the payments.

Price is not the only concern for tenants. Rental contracts in the UK provide flexibility and protection for the landlord. On the plus side, this power has made rental properties an attractive investment. The amount and quality of rental accommodation has increased dramatically since 1996, when the present style of contracts, known as assured shorthold tenancy, became standard.

But tenants are typically left with little assurance of being able to stay in a home for long periods. Landlords have the power to remove tenants or raise rent by any amount at the end of each contract period, typically one year.

Strong tenants' rights are among the reasons renting is so common in Europe. In France, contracts allow tenants to stay indefinitely, and rent can be increased by only a nominal amount each year.

Nicole Jeffries, of the Manchester letting agent Pad Residential, says: "There is no reason why the contracts can't be for longer but it isn't practical. I wouldn't advise any landlord to commit for longer than a year. Most contracts we see have a one-month break clause, so a longer contract wouldn't make any difference."

If the rental market continues to grow, experts say longer- term contracts will develop to meet demand. But, for the time being, renting in the UK will remain a transitory stop on the way to home-owning.

TOPS FOR LETTING

Percentage of rental homes in each country:

Germany 59;

Austria 50;

Netherlands 49;

Denmark 47;

France 45;

United Kingdom 33;

Italy 23;

Spain 19;

Irish Republic 19.

Source: European Community Household Panel, Eurostat

HOW TO GET THE BEST DEAL

* Shop around for a bargain and haggle on price. About 80 per cent of rental agents in London, 51 per cent in the South-east and 41 per cent in the rest of the country report a severe oversupply of property.

* Apply for housing association accommodation because it will be cheaper. You will find contact details for local housing associations at your council offices or on the NHF website: www.housing.org.uk

* Include all verbal agreements in the contract, such as length of tenancy, furnishing, right to keep pets etc.

* Make sure the break clauses do not render the length of your tenancy agreement useless.

* Insist on an independent inventory of the house; that will help you get your deposit back when you move out.

* Make sure your landlord maintains the property. Repairs to the outside of the property, water and gas pipes, wires, basins, sinks, toilets and fixed heaters should be paid for by the landlord.

* Maintain a friendly relationship with your landlord; it will make life a lot easier.