Support, Advice and Experience within the Property Market

Cost of Renting

From Robert Ulph on February 22, 2016

This week I thought I would take a look at the Association of Residential Letting Agents (ARLA) recently published ‘Cost of Renting’ Report as it states a first time buyer (FTB) purchasing their first house this year will have spent nearly £53,000 on rent by the time they get on the first rung of the ladder. Future FTB’s can expect to spend 22 per cent more, according to ARLA in the report which they compiled with the Centre for Economics and Business Research (Cebr.)

The report reveals the average FTB in England in 2016 will have spent 16.4 per cent of their total lifetime earnings on rent for all the years they were a tenant. Data from 2015 shows on average people in the UK spent 22 per cent of their wages on rent, increasing to 30 per cent in London. Those living in East Anglia enjoyed the most affordable rents due to relatively high earnings in the region, yet rent still accounted for 18.9 per cent of their disposable income.

Rising rent costs and future homeowners

Brits that move out of their family home at the age of 18, will typically rent for 13 years before buying their first property. The Cost of Renting report found those leaving home and starting to rent this year, will spend an average of £64,400 before they are able to buy their first property – one fifth (22 per cent) more than current FTBs getting on the housing ladder this year will be spending. Those leaving home and starting to live independently in London will continue to be worse off, as they will spend an average of £91,500 on rent before they can buy their first home – £23,100 more than those buying in the capital this year.

David Cox, managing director, Association of Residential Letting Agents (ARLA), comments on the findings: “The rising cost of rent in this country is a huge issue, and is preventing tenants from being able to save to buy a home. Our Cost of Renting report reveals that tenants are already spending a significant proportion of their income on rent, and therefore struggling to save any money. However, as house price affordability worsens and interest rates start rising, more pressure will be put on renting with rents likely to rise, so home ownership will remain out of reach for many.

“Rents are becoming alarmingly unaffordable due to the lack of available housing; the North-South divide we’re currently seeing in the UK is a clear illustration of this. The London rental market is competitive, with far more prospective tenants looking for properties than actual houses available. This is pushing up rents in the capital, which will continue to put pressure on surrounding areas, including the East, as Londoners relocate to avoid high rent costs.”

A nation of forever renters.

A fifth (21 per cent) of those renting in the UK do not expect to ever be able to afford to buy a home – with rising house prices and low wages forming a barrier against FTBs getting on the property ladder. Still, younger generations feel optimistic, with three quarters of those aged 18-34 (75 per cent) hoping to buy in the future. This optimism wanes with age as only half (48 per cent) of 35-54 year old renters have plans to buy in the future.

Nine in ten (87 per cent) tenants feel they are being held back from being able to buy. Saving for a deposit is the biggest obstacle, with over half (51 per cent) claiming this is stopping them. A quarter (23 per cent) would not be able to afford monthly mortgage repayments and a further quarter (26 per cent) cannot afford the associated costs such as stamp duty and solicitors costs.

David Cox concludes: “It’s really worrying that so many renters don’t ever expect to be able to afford a home. Although housing is high on the political agenda, all we’ve seen come out of Parliament recently is legislation which is set to hinder the experiences of tenants; and the sheer lack of affordable housing means many renters will never fulfil their dreams of homeownership. Despite the Chancellor’s efforts in the Budget to help the housing market, the housing budget accounts for just 0.26 per cent of public spending, lower than other key areas, such as transport which accounts for 3.6 per cent of total spending.

“As rent costs continue to rise, unfortunately more and more tenants will find themselves renting for longer as they have less ability to save. We need to take action now, before we become a nation of forever renters.”

I would also add that due to the proposed increase in stamp duty for Buy to Let investors (and second home owners) starting in April 2016, the Government doesn’t see the private investor as the answer, but I still believe that even with these extra charges coming into play investing in property is still worth doing as the housing crisis is still going to exist and the demand will still be there and returns will remain good.

If you would like a copy of the report please do not hesitate to e-mail me and I can get a copy to you.