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Is home ownership an unscalable mountain for most tenants?

July 26, 2012 | Landlord News  

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It’s no secret that home ownership is becoming a less and less achievable goal for today’s tenants, as evidenced by new findings by property-sharing website, SpareRoom.

They found that for 42% of tenants, home ownership is completely out of reach due to not being able to save enough money for a deposit, or not being able to save money at all. 19% believe that they will never be able to afford to buy their own home, and 17% think that it will take them over 10 years to save enough. It’s not surprising so many struggle to set much aside given the fact that nearly one-third of tenants are spending more than half of their take-home pay on rent.

Among those that are able to set aside a jar of savings for a deposit (35% of all tenants), the average amount saved is £12,125. That is approximately 7.3% of today’s average house price of about £165,000, which falls well short of the 20% routinely required. What’s more, of the fortunate minority who can afford to set aside savings for a deposit, 35% have found that they need to dip into their savings regularly or to pay for holidays. 60% of the under-30s have dipped into their savings jar.

However, 48% of tenants polled said that they would be happy to rent long-term if there were less pressure to buy. 79% described themselves as employed professionals.

Nearly one-fifth say that house prices are simply too high, while 39% blame the steep deposits required for their inability to get a foot on the property ladder, which for the average person seems to be hovering about 10ft off the ground.

26% predict that it will take them between 2 to 4 years to save up enough, while 30% think it will take 5 to 10 years.

Matt Hutchinson, director of SpareRoom.co.uk, said, “A significant proportion of the people we polled expect to live in rented accommodation for at least five years, and many believe it will be much longer than that.


“The facts speak for themselves. Soaring living costs mean it’s a struggle for many households just to keep their heads above water each month, let alone have enough spare cash to put aside towards a deposit. The survey shows that even those who are squirrelling away funds have not managed to save anywhere near enough to buy the property they want.

“What’s clear is that something has to change. House prices need to fall, mortgage lenders need to offer more assistance to first-time buyers with higher loan to value mortgages, and the Government has to accept there is a need for more affordable housing to purchase and affordable rental properties available privately or through housing associations.”

However, tenants aren’t the only ones feeling a little blue about their outlook, as a recent ‘private rental sector health check’ by online self-service letting agent Upad has shown.

According to their findings, which asked a total of 500 landlords whether they were more confident or less confident about the buy-to-let market, 63% said that they were confident – a fall of 10% compared to April.

James Davis, head of Upad, had this to say, “The UK private rental sector overall has continued to perform well, hence why the majority remain confident, but that doesn’t mean that there aren’t areas for concern.

“The Consumer Credit Counselling Service, for example, reported a 55% increase in the number of calls they receive from tenants unable to pay their rent, and around half of these callers claim unemployment as their reason for being unable to pay rent. This issue of affordability tends to be more focused outside the London market.

“As well as this, LHA cuts have made it unaffordable to rent to those on benefits, while the number of specialist buy-to-let mortgage products have declined.”

One of the landlords surveyed said, “I am less confident this month. We have ten properties as far north as Cumbria and we are clinging on to our tenants in these areas.


“Most are on housing benefit and we have to wait for payments now more so than ever –some are struggling and we are not getting the full rent each month. However, by contrast, we have six properties in the London area and these have always been easy lets. We seldom have any issues here.”

Another landlord said, “I registered as less confident because wages are stagnant or reducing, living costs are high, and tenants are negotiating rents down wherever possible.


“There are also fewer investment mortgage deals in the market than there were in 2007, making it much tougher for landlords to find the right deal.”

There is no pain to one without pain to the other in the symbiotic tenant-landlord relationship, proof of which is no better demonstrated than in the latest figures from the Buy-To-Let Index by LSL Property Services, which show that rents have risen for a third consecutive month in June, with tenants’ arrears increasing also.

In total, 9.2% of rent was late or unpaid, with the unpaid rent in June estimated to have amounted to £289m. The average rent in England and Wales rose in June by 0.9% to £718 per month, £2 short of last October’s record high of £720, and 2.4% higher than in June last year.

On a monthly basis, rents fell in the South-West by 0.3%, but rose in all other regions. Wales saw the highest rise (2%), followed by the North-West and West Midlands (both 1.7%).

Londoners got hit with a rise of 0.9%, bringing the average rent up to a dizzying £1,047, beating the record high set the previous month. Tenants are now paying an average £41 more compared to June 2011, having climbed 4%, making London the region with the fastest annual growth. Rental inflation was second highest in the South-East, with rents rising 3.6% compared to June 2011. On an annual basis, only the East Midlands and the North-East remained in negative territory. Wales returned to growth.

David Brown, commercial director of LSL, said, “The sheer weight of tenant demand continues to push up rents across the country.”

What is immediately clear, and worrying, is that this trend is unsustainable and ultimately destructive. Sooner or later rents will rise past the point where tenants can afford to pay and the bubble will burst, unless either the profit margins take a hit or more houses are built.

Such sobering news doesn’t quite leave one with much to smile about, although there has been one piece of news that has surfaced that is bound to raise the spirits of all good landlords and struggling tenants:

The money-grubbing landlords of London who kicked out perfectly good tenants in order to achieve substantially inflated rents from Olympic visitors have found that there is a gaping hole in their pockets! Agents have reported that only a tiny number of these flats have been taken; in Stratford, 300 short-let Olympic properties remain vacant. Prices range from £4,000 to £6,500 per week in an area where the usual rate is £1,700 per month!

A dedicated Olympic lettings section on the Foxtons website shows 2,000 properties still available. The most expensive was a six-bedroom boat moored at Canary Wharf, going for £60,000 a week. £750 a week for a two-bed flat in Islington was the cheapest.

They may not have taken the gold in the Olympic ‘egg-on-face’ event thanks to a spectacular performance by G4S, but it was a solid effort nonetheless.

 

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