Would you rent or buy somewhere to live?

04 Oct 2016

The English – home-owning capitalists no more

In modern times when it came to rent or buy Englishmen have always been a nation of home owners; capitalists who spend to profit instead of saving. This is in contrast to our near neighbours, the French, who save and would never dream of borrowing money they didn’t have to buy property. Our obsession was viewed as reckless speculation. From 1917 until 2001 the English and Welsh changed from 77% renting to 70% owning their own homes. It may surprise a lot of people in middle age to learn that the proportion of homes that were owned has fallen in favour of rentals in England and Wales. It won’t surprise younger people..
According to the ONS last year and an older survey in 2013 the reasons for this recent switch to renting are all too familiar: –
• High and rising house prices. The average house price for first time buyers rose by about 96% between 2001 and 2011. Deposits have become un-affordable
• Mortgages are harder to get – the credit crunch has caused lenders to tighten terms. No longer can first-time buyers get 110% mortgages
• Falling wages and inflation hit buyers’ ability to save and fund mortgages for those that could get them.
• In 2001 the average house price was six times the average gross wage, by 2011 this was nine times

Rent or buy

So, for the reasons above, in the choice of rent or buy we are beginning to turn away from home ownership towards renting. This trend appears to be forced upon us and not one that we have chosen. It would be logical to assume if property prices fell, mortgages were easier to get and wages rose then we would start buying property again. However, that doesn’t seem to be on the horizon so what are the relative merits of the two alternatives?

Advantages and disadvantages

Most renters do so because they have no choice to rent or buy as they simply cannot afford to buy.

The advantages of renting and, if you turn each on its head, the disadvantages to home ownership

• You have no serious property-related debt
• You have no mortgage interest payments
• Much lower initial costs; deposit, furniture, stamp duty, legal
• You can move relatively easily to save money, get more space, relocate – or on a whim
• Less responsibility for maintenance and liability
• Less hassle because it’s a smaller decision and easier to reverse
• Less of an issue should you separate from a long-term partner
• More access to benefits and financial support should your circumstances change

Advantages of home ownership and, conversely, disadvantages of renting

• 

  Ownership is no longer possible for most

  
  You can generally do what you like with it, remodel, develop, invest
• You can own pets, start a family and sub-let without asking permission
• Your monthly mortgage payments (after interest) are being invested and has a good chance of (for most in the past) making a profit
• When you die you have created an asset for your descendants
• You have a feeling of security, roots, belonging
• Mortgage payments are generally less than rent
• You have control over issues within the home such as maintenance
• It can positively affect progression in other areas such as business growth and start-ups

So it’s clear that there are strengths and weakness for both rent or buy. As said, in reality for a lot of people there is no choice. It’s a bit like asking the average citizen ‘would you buy or lease your Private Jet?’ The overwhelming reason for an increase in renting is the reason stated. It’s too darn expensive.
But we found two home owners in the limited group of people we’ve spoken to about this, who, given their time again, would not necessarily buy……

Michaela

is a thirty-something married professional and mother of one young child. She has two pets and owns her fourth home – a detached property in Felixstowe. She says: “It dawned on me once we had ‘made it’ to our new house. What did it take for us to get here? How much have we spent climbing the ladder? How much stress have we experienced doing places up to make some money to buy a bigger, better home? I love the feeling of security, so far as we can choose when we move, and there is no landlord invasion, but that only goes so far. We are always dependant on what is happening in the job market and, actually, a mortgage also brings a lot of pressure.
“Moving is expensive and takes time. It removes the possibility of experimentation, of temporary adjustments to lifestyle. I’m not sure when I learned that home owning was so important and I reached my mid 30s before I analysed it. I’m not sure I would put so much time, effort and money into this area of my life if I had my time again. Partly because I think the days are gone when you can leave something for your children, unless you are very successful. I know so many older people now planning to downsize, enjoy their equity, protect it from the taxman and the nursing home owner. I’m not sure this journey is how we achieve contented living.”

Hana

another thirty-something professional with a husband, child and dog, adds: “When our financial pressures increased, we would have definitely moved, had we been renting, to decrease our monthly expenditure. However, the cost of selling and the emotional attachment kind of took that option off the table. In the meantime, we must have spent nearly a grand in fence panels over the last three years, have had to replace the windows and our boiler’s looking pretty fragile. I love our house – and I think I would feel frustrated had I not managed to buy – but you do find yourself wondering what all the fuss is about once you’re on this holy-grail of a property-ladder. Perhaps the traditional British view that buying is a key milestone is becoming less relevant – and we should be reassuring youngsters who can’t, or don’t want to, buy, that that’s a completely acceptable alternative.”

The future is pretty bleak too…

Research by the Halifax Building Society reveals that in parts of Wales, where the average house costs around £118,000 or about four to four-and-a-half times average local earnings, first-time buyers are typically 27. In contrast west London, the average first-time buyer is 34 and homes cost some £411,000 about 10-and-a-half times earnings. The consequence is that the average first-time buyer in south-east England must wait seven years longer to get on the property ladder than those purchasing in more affordable areas. No choice to rent or buy, they have to rent.
Plus, despite repeated political announcements the pace of housebuilding is way behind demand and so there appears little to appease first time buyers. This is despite talk of a change to move stamp duty from the buyer to the seller. Increased mortgage activity is distorted by existing mortgage holders refinancing to take advantage of the lower rates available over recent years and not a welcome increase in new mortgages.
Looking at estate agents’ windows you would feel that there’s plenty of property on the market but a healthy supply at high prices makes property no more attainable.
The reality is that the amount of property that is owned outright, without a mortgage, is rising over 30% nationally and in certain retirement locations; E Devon, E Dorset and N Norfolk it’s approaching 50%. With inheritance some of these properties may not find their way back onto the market for some time although the parallel sharp increase in later life care costs may force a sale in more and more cases.
In the rental market there is no such shortage with London, where over 50% of households are being rented, well above the rest of the country – due to high house prices, a younger population, increase labour mobility and a high immigrant population.

Home ownership – the new paradox

A survey by NatCen, Britain’s leading centre for independent social research, published in March 2016 says:
• The vast majority of young adults aged 18 to 40 want to own their own home – almost all home owners and three in five non-owners.
• Overall, young adults rank home ownership as more important than getting married or having children and achieving their career or educational goals.
So when it comes to the choice to rent or buy the market is forcing people to rent while it’s clear that they want to buy. And it isn’t one set of people is forcing another set of people to pay more it’s just market forces – there is surplus demand and, until that is redressed, the proportion of people renting will continue to increase.
The next question to ask is why do young people want to own their own home… the young women we spoke to say it’s not all it’s cracked up to be, so what is it that’s making it so appealing? We hesitate to know the answer but certainly the following have a part to play: –

• Most young people will have parents who have made money on property so see it as a good thing
• Property ownership is less taken for granted and has become more aspirational
• An owned peoperty feels more like home
• Owning property has always been a sign of success
• Owning a property gives you some financial security

So people want to own property despite it being harder than ever to do so, despite a growing supply of rent-able property and despite the experience being less than attractive