22 June 2017

Around 5m households are in the private rented sector and over the next five years this is set to rise to 5.79m (or 24%) with an additional 4.3m tenants in social housing according to a report by Knight Frank who commissioned a YouGov survey of more than 10,000 tenants and 26 large investors.

There is a rise in large corporate landlords who have only recently woken up to the opportunity to build to let.

But how has this happened in the UK where our homes are supposed to be our castles? And is it a bad thing? Is owning your own home all its cracked up to be?

To find out, firstly we need to discount those tenants who are renting through choice. The research shows 8% are renting because they didn’t want the responsibility of owning, 6% needed flexibility for work, 6% were downsizing and another 6% cannot find another home to buy. A further 5% didn’t want to be tied to one area.

So 31% of all tenants are using the rental market to their own requirement, precisely what it is there for. But what of the remaining 69%?

There is a lot of insecurity when renting, tenants are at the mercy of landlords who can issue notice to leave in just two months once the initial (usually 6 month) period has expired, it’s likely that most would rather own a home than not, but how many would be willing to swap this insecurity for the rollercoaster ride that owning a property can be?

Firstly there’s maintenance. If something goes wrong in a rented home, a dripping tap, a boiler breakdown or a major roof repair it’s covered by the landlord. Own your own home and you’ll have to foot the bill.

Buying costs. Whilst these will just be one off costs the average home will still eat up about £4000 in Stamp Duty, legals and other charges when you buy.

Interest Rates. Currently they could hardly be lower, just 0.25% but look back ten years and they were 5.75% and in 1989 were nearly 15%. Over an standard 25 to 30 year mortgage it’s very likely rates will increase a lot.

And this brings me on to interest itself which is ‘dead money’, something people often call rent. Buy a property with a £125,000 loan and you’ll need around £25,000 as a deposit and still have to pay £400+ interest. After 25 years you’ll have paid over £120,000 (and that’s if rates don’t increase) and still owe the original loan too.

Flexibility. 31% of those in the survey agreed that it wasn’t the right time for them to buy – I suspect the figure is in truth much higher. Factor in those who don’t like financial uncertainty, recent arrivals from overseas, those who choose not to invest every last penny in bricks and mortar and many more. They wouldn’t consider renting a bad thing.

Renting provides a very positive benefit to the UK property market but it needs to adapt. I hope that soon the government will look to actively encourage landlords to let longer term. With less uncertainty there will be many more much happier tenants.