Could it be the case that renting will become the more important tenure in the UK in the future?
The deposit hurdle
It is unlikely. In the short term there are certainly factors which are limiting the growth of home ownership and skewing the tenure choice towards renting.
More stringent credit conditions have moved average first-time-buyers’ LTVs from 90% at the peak of the market to 80% now.
But let’s not kid ourselves; even before the credit crunch when LTVs were higher, deposits were becoming more of a hurdle.
Today, with a first-time buyer average house price of about £122,000, a new buyer would have to raise a deposit of nearly £25,000.
With average earnings for 22- to 29-year-olds of around £20,500, it’s clear it will take a long time to save this up.
Things are particularly hard now too because savings rates are so low and high inflation is squeezing disposable income. Real household disposable incomes fell for the second quarter in a row in Q1 2011.
The rental drift
The age profile of the UK population implies that demand for accommodation will increase from the 25- to 29-year-old age groups over the next five years.
Not all of these will be willing, able or allowed to stay with their parents.
So, they will drift towards the private rented sector, creating more demand for landlords.
This is good news for the buy-to-let sector and for those landlords with a good product and in a good financial position.
However, these new renters are unlikely to stay there forever.
Home ownership is still desired
Home ownership aspirations are still very high in the UK.
A CML survey last year showed that 85% of the population expect to be owners in ten years’ time and 76% want to be owners in two years.
But not everyone can afford it and there seems to be some recognition of that among the younger age groups.
In the 18- to 24-year-old age group, only 42% expect to be owners in two years. Yet, looking ahead, 88% of them expect to have achieved it in ten years’ time.
In summary, while we will see an increase in renting in the short term, aspirations for home ownership are as strong as ever.
Choosing the private rented sector may be a more popular choice than it was because of affordability and some may stay in that tenure for longer, but it will take more than that before we become a nation of renters.
Fionnuala Earley is UK consumer economist at NatWest
