In a study by Scottish lettings agency, DJ Alexander Lettings, results have shown an increasing trend towards long-term letting rather than buying their own home. The agency which is responsible for managing 4,500 properties in Glasgow and Edinburgh interviewed tenants with leases expiring between February and May 2016.
In the study, some 17 percent said they were going to move into their own homes while 83 percent said they would continue to rent, either moving up to a bigger accommodation or for some, moving into a smaller one because of issues of affordability. Others stated that they would be renting in a different location altogether due to changes in their jobs or lifestyle.
The agency’s associate director, Rob Trotter said, that more than 17 percent of tenants who were leaving would likely prefer to become owners of their own home, but finding sufficient deposits has become a problem these days. Notwithstanding, the reports also proved a common trend where tenants who are able to afford the deposit and are credible for a mortgage prefer to continue renting when their leases end.
According to Rob Trotter, the society is tending toward transient behaviour, as a result, rental accommodation is suitable. It will become even more important when the minimum lease term is reduced from its existing 6 months under a law which was recently passed by the Scottish government.
The law puts a restriction on landlordspower over their properties. It also successfully strengthens the guarantee of the tenure and will ultimately increase the attraction for people seeking to rent same properties in the long-term.
In a previous study by Price Waterhouse Coopers, a leading audit and research firm, it has become a norm among the younger generation to rent privately, and many of them may not own their own homes until much later in their adult lives. They study posits that 3 things are responsible for this trend:
- Housing Supply
- Demographic Trends
A rise in the availability of affordable housing could change it in the long run, but is unlikely to happen fast enough to curtail the rise of Generation Rent (as they have been dubbed), between now and 2025.
Renting is now a more popular alternative, as purchasing a property has become more expensive. The sharp increase in the price of housing in the early 2000s doubled the ratio of house prices to income, from around 4 in the 1990s to below 8 today. While dropping mortgage rates have limited the growth of interest costs, the same can’t be said for first time buyers’ deposits.
First-time buyers have been strongly affected by the combined effect of increasing house prices and lenders diminishing higher Loan-to-Value mortgages. Hence, the average first time buyer deposits have risen significantly –almost five times- since the late 1990s. The rise in average deposits greatly surpasses the growth in average income over this period, and thus raising a higher bar for first time buyers to beat.
This development threatens to bar huge segments of society out of the housing market, specifically those who earn middle or low incomes, or reside in expensive areas such as London and Cambridge. It has also been observed, that the number of people living in private rented accommodation has doubled from 10 percent to 20 percent generally since 2000. However, for people within the age gap of 20-39, it has soared from 20 percent to 50 percent.
Another important point to note, and a more popular factor, is the limited number of available new housing. Many years of decreased housebuilding continues to affect this, while the population has increased significantly. In the last six years alone, a little over 140,000 homes a year were completed; a figure much lower than the average rates obtainable across the previous 4 decades.
There has also been a major change in the structure of new house construction, which has affected the tenure trends. Social housing completions have dropped from 47 percent of the market in the 70s to around 20 percent since the 80s (with a few differences). The overall fall in the number of houses being constructed also indicates that the total number of social homes being developed is historically below par. This factor, and the effect of Right-To-Buy moving social rented standard into other tenures, has led to the continuous decline in social rented housing, because replacements couldn’t keep up with those being sold.
Demographics have also contributed to the shifting structure of the UK housing tenure. An increasing number of people in older age segments since 2000 has pushed the cross-over between those with a mortgage and those owning completely. People older than 60 have a better chance of owning their own house completely rather than own with a mortgage, because loans are often set to expire around the age of retirement. Conversely, the number of the UK populace in their first time buying ages (20 -39) has remained flat.
The rise in the number of people over 60 years old is projected to continue according ONS calculations, attaining almost 27 percent of the whole UK population by 2025. Conversely, the segment of 20 – 39 year olds is expected to stay at 25 percent. This increases the number of the group with high levels of ownership as opposed to those in it hoping to request for mortgages.
However, the recent results of the EU referendum led to a wobbly property market, and reduced mortgage rates, which has seen many buyers use the opportunity to re-mortgage their homes. But this hasn’t had a significant effect on renters, as new laws that will reduce tenure from 6 months has spurred many to continue renting for longer terms.
In conclusion, affordability, number of available housing and UK’s demographics are the main factors responsible for rising number of long-term renters across UK regions. According to Price Waterhouse Coopers, housing supply shortages will likely persist for at least another decade. In reality, there is going to be a rise in Generation Rent till at least 2025.