Renters don’t have it easy. Housemates can be unpredictable, rules can be strict, but worst of all – it’s expensive.
Most tenants know this instinctively, but the numbers are there to back it up. The government’s Index of Private Housing Rental Prices contains data that compares owner-occupiers’ to renters’ housing costs. In the most recent measure, it found that on average in the UK, a tenant would pay around 32 per cent more to rent a property than an owner-occupier would to live in it.
Similarly, Zoopla recorded that a renter would need an income 17 per cent higher to rent a property compared to taking out a mortgage on the same unit. In areas like the North East, mortgage holders would only need half the income of a renter to buy a property versus rent it out. While we may see some correction with higher mortgage rates, renters still pay a far higher percentage of their income on housing.
Not only does this put renters in a tough situation, but it’s actually getting worse. Rents are increasing at a faster rate than house prices, which themselves have enjoyed a remarkable period of growth since the pandemic. Rents in London increased more than 15 per cent between March 2021 and 2022, according to Zoopla’s data.
Back in September, Zoopla’s data also anticipated that if mortgage rates were to rise to five percent, buying power could be reduced by as much as 28 per cent. With mortgage rates now reaching 14-year highs with five-year fixed-rate products at six percent, the rental market is at risk of saturation and rent prices could be hiked up even further.
Surprisingly, this bleak situation that faces renters doesn’t seem to have caught the attention of the public or the government in the same way as energy bills or inflation. This is partly because private sector renters are still in a minority overall, and partly because there’s an ingrained cultural attachment to owning a home. Many see renting as a temporary stepping stone to eventually buying a house.
But renting can be an extremely fulfilling experience, and is often a sensible decision in the circumstances. The issue is the cost.
The growth of the Build To Rent model in the UK is testament to the fact that renting can provide access to amenity-rich, well-located housing that would otherwise be out of reach. And given enough new supply, rents will come down. But this is a long-term solution, and also relies on developers being able to navigate a decidedly hostile planning system.
With Michael Gove now appointed as housing secretary in Rishi Sunak’s new cabinet, there may well be a renewed hope for renters. Gove has urged his party that home ownership can only be achieved through cheaper social homes for rent, so tenants can “build up capital, if the rents they are paying are fair”, arguing that “there is a direct relationship between extending the number of homes for social rent that we have and ensuring that you have more home ownership in the future”.
Gove has previously worked on the Renters’ Reform Bill that aims to give renters long-term security in their home and improving housing standards across private rental homes. His appointment will hopefully give renters what they need – help in the here and now.
The legislation shows that he understands the underlying structure of renting needs to change.
One of the more punishing aspects of being a renter – paying five weeks’ rent as a deposit – makes it extremely difficult to move, given that typically one deposit isn’t released before another one needs to be paid. It’s a distinctly old fashioned solution that’s no longer necessary given the development of payment technology in recent years.
There are two approaches to moving past this antiquated system. The law is a blunt instrument, but a reinvigorated DLUHC could mandate that landlords and agents at least offer a range of deposit alternatives. Less drastically, raising awareness among consumers of the options available to them would go a long way to encouraging better financial planning, and would also put pressure on those in the property industry should more consumers demand an alternative to a five-week deposit.
Solving the rental conundrum will likely require a mix of regulatory and commercial approaches. But the first step is clear – it’s time we acknowledged that the traditional model just isn’t working. Let’s hope that Gove can pave the way for further reforms.
* Gary Wright is co-Chief Executive Officer of flatfair *
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But renting and buying isn't the same and the costs aren't really comparable.
Obviously a mortgage will be cheaper because it is only funding a percentage of the purchase price, maybe 60% or 75%. Also the interest rate on residential mortgages is usually significantly lower than on BTL mortgages.
The standard of maintenance is entirely up to the homeowner. Landlords have to comply to much higher standards. How many homeowners don't bother to get their boiler serviced every year, don't have smoke or CO detectors, have never had their wiring checked?
Renting suits most people at some point in their life. It is flexible, convenient and has very low entry and exit costs. In the long term home ownership is usually cheaper as long as you don't need to move house frequently but the very considerable buying and selling costs need to be remembered when making a comparison.
Last time we moved house 11 years ago a combination of estate agent fees, SDLT, legal fees for both selling and buying, mortgage fees, etc came to just over £25000. That really is dead money.
Stop talking common sense
I’m sure it was either SAL or ARLA did their comparison when taking compliance, repairs and mortgage costs into account … it was actually cheaper to rent!
The elephant in the room is social housing, we all know on here, the public know and all politicians know… there is nowhere near enough of it, unless millions are built we will NEVER solve this. The term affordable housing is trotted out on a regular basis, to the people I meet in my day job, affordable is free ! I mean totally free paid for by UC, if not, then they cannot even consider it, simple as.
I take my hat off to you Simon, dealing with those sort of people in your day job, I couldn't, red mist
Renters pay more for their housing than home owners, very simple answer to that one, renters should buy instead of renting, that was easy wasn't it
It isn't that straightforward due to affordability multiples.
A tenant's annual salary needs to be roughly 30 times the monthly rent to pass affordability referencing. Someone paying £1000 a month rent needs to earn £30000 a year.
Someone earning £30000 could maybe borrow 4.5 times that, so around £135000. Assuming a £15000 deposit plus all buying fees is available to them that gives a budget of £150000 to purchase a property.
In this part of the country someone on £30000 would have the choice of buying an unmodernised ex Council flat or a purpose built one in a not very good area with a dodgy lease. Probably with one bedroom, maybe two if the condition is bad enough or the lease or area dodgy enough.
Or they could rent a very nice two bed in a good area with parking and all modern conveniences.
Buying may be the long term better idea if they have good DIY skills, can cope with living somewhere less than ideal for as long as it takes, the market doesn't crash and traps them in negative equity, there is no risk of becoming unemployed, etc.
Renting is the safer option in an uncertain economic climate.
Jo you are taking things too seriously , my comment was '' tongue in cheek''
If it was for the author, Shelter, Generation Rent, Crisis, Acorn et albdemanding (and fetting) more rights & gigher standards then mybe rents wouldn't ge quite so high.
No doubts these organisations will be trimpetting the Renter Reform Bill but maybe not the consequent rise in rents that it will precipitate, and the increased shortage of rental properties, and subsequent increase in homelessness.
BE CAREFUL WHAT YOU WISH FOR!
If you’re relying on Gove for a lifeline I wish you luck. He is 100% out for his own glory. Combined with his back stabbing skills he part of an elite team of modern self serving politicians that have trashed this country .
Exactly. Like Boris signing off HS2 getting the country billions into debt so he and his cronies can all run around shouting “we’re levelling up”. Which to most sensible people means ill thought and prepared policies usually involving throwing lots of money down the toilet throwing good after bad.
Gove is going to be responsible for increased Pain to renters, whilst he tries to sell it as Help - The Govt sell snake oil.
What hurts landlords, hurts Tenants, and this schoolboy error is responsible for the current housing status.
There was 350,000 advertised as available for rent, and now its 214,000 and falling.
When the Private sector refuse to accommodate societies problem children, where will they go, - to non-existent Council housing, or onto the burgeoning Social Housing waiting list ( who are equally fussy who they give tenancies to )
Perhaps all the Homeless caused by Govt destruction of the PRS could move into hotels, instead of the migrants ?
I think most tenants are fully aware that what Grove is doing to us is hurting them more, the audience Grove is playing to are the bitter and twisted jealous landlord haters like himself
I've said it before, Ireland is a bellwether for the UK. In 2009 there were 23,000 properties to rent on average. Now, in 2022, there are currently 730 available across the whole country! Yup, 730.
The Irish government has now reversed many of their landlord bashing measures. Too little, too late. All the older landlords have cashed out and are enjoying their cash elsewhere. Certainly won't be investing again. The next generation can't make the numbers add up so new properties just aren't coming to the market.
UK politicians - take note
To rely on Gove for assistance with renting would be akin to asking Dr.Crippen for assistance with a sore knee !!! That would not end well also.
Another pointless article that is based on a stack of lies by omission. To compare the cost of renting with owning by simply comparing the cost of rent vs a mortgage - ignores the cost of deposit, SDLT, legal fees, ground rents and maintenance costs or building maintenance costs, repairs, updates of heating systems, wear and tear of carpets and decorating, costs of refurbishments etc etc and so the list goes on.
For the premise to be correct that renting is more expensive than owning, you have to ignore a whole bunch of costs in order to be correct.
While there are plenty of benefits to owning - capital appreciation, stability, having something to pass to your kids etc etc. it is a fallacy to suggest the day to day costs of renting are more than owning.
It is because of all these lies by omission articles, that such anti landlord sentiment exists. It promotes and encourages a lot of false beliefs among renters that seem to believe every pound they pay in rent is pure profit for the landlord. Many properties barely break even and rely more on the hope of capital appreciation than anything else.
Gove will not improve anything for renters, he’s another one in a long line of politicians who say we need more social housing - but you won’t see any significant change. He will just give up and resort to bashing landlords in the hope of looking like he’s on their side. Like for any other business - if you want better prices for renters, then make the cost of running the business for landlords cheaper.
Excellent summary of the situation. I would add that the Government help thus far has successfully reduced the amount of housing stock for rent, further alienated Landlord's from any of their new policies, which will make passing a good one (I wish) so much harder.
Added costs to Landlord's and subsequently to those whom Rent.
Gonad Gove, sounds like a winner to me!!
Pinch the soft ones (middle class landlords) as usual. We are killing the middle class, only super rich and poor will be left in Britain. Most landlords invested a lot on the properties, but the return is getting less and less with all the unnecessary policies, we need a housing minister that actually support economy, knows economy. They said - don't cut the hand that feeds you. If government don't save the landlords, then the renters will be the next to get hit. Then lots of employment will get hit. PRS is doomed. Whose fault is it? Stamp Duty revenue to government will collapse, government will then need to find funding elsewhere. PRS will have nothing left. Government needs to create economy, and hire creative, knowledgable business people, not politicians who only count their vote. In 21 years, we had 19 housing ministers, seems the direction is wrong and we keep going that way...
Why compare renting vs homeownership anyway? Why shouldn't it be more expensive?
It's like any service you receive. If you don't employ any of your own capital and you rent an asset you have to pay for that asset, pay for the service provider, compensate them for risk and compensate them for buying the flexibility.
There really aren't any other businesses where a business owner would accept a yield of say 5%. We don't hear people moaning about every other company in the country who are making returns in excess of 5%. With interest rates reverting back to historical levels its not even possible to enhance the yield via leverage.
I wish people would stop pu55y-footing around and just say it how it is. If anything, returns on rentals should be higher. It's a capital intensive business. It should be more expensive, end of story. If people have a problem with housing costs we should either make more houses or have fewer people.
Renting a car is more expensive then buying one.
Outrageous! Free cars for all!
Send Gove into the celebrity jungle to eat kangaroo balls I say. Join Hancock .
Career politicians come celebrity back stabbers
Noone seems to ever tackle at root source, the simple equation that doesnt stack up. Since 2010 we have built an average of 139, 000 properties. Everything including social. Net migration in the same period has been an average of 305,000 and growing. It's set to be 374,000 this year whilst house numbers will be 174,000.
So thats an average of 166,000 shortfall every year and a 200,000 shortfall this year let alone chipping away at the defecit. Unless we can start building 500,000 units a year, very quickly, government needs to get a grip on immigration. On the basis we arent capable and dont have enough land, then its going to have to be the latter. There is no point allowing all these people entry to the UK if there is nowhere for them to live, or they displace other people who then have nowhere to live and thats before we start talking about the annual 40,000 channel crossers who arent in the net migration numbers.
I'm not going to get into an immigration argument.
But would just point out that immigration numbers (in persons) doesn't equate to housing numbers. In many English districts, the number of persons per home (household) is 2.1. The average may not be too different for immigrants as many may be single males coming for work, balancing out migrant families somewhat.
374,000 persons / 2.1 = 178,000 (so yes still more than the 174,000 figure, just not as far away from it).
Number of new homes does also need to meet the increase in the resident population, and Govt. has not met its 200,000p.a. target for all the years it has had it. It was decades ago that housebuilding numbers were about that level.
Trying to plan for, and get built, more homes will always be hard as people tend to be understandably NIMBY (I used to do it as a job). Local politicians tend not to want to put the 'housing needs' case to their voters.
Not building enough homes will help higher rents for us landlords though: if we can withstand the stupid new PRS proposals.
As Govt. cannot build enough homes and rents rise further; rather than taking the blame for not building enough, politicians blame landlords for being greedy. Typical of so many politicians = blame someone else for their faults.
Statically speaking the stats will be wrong because no one knows only think they know since Government interference, removing landlords rights at excluding him from the property. Even the licensing Schemes makes it much worse by reducing the official occupancy, then the Tenants brings in extras because they have all this spare capacity and know they are immune from prosecution, it the landlord they have made powerless is the fall guy and will be fined, so I can tell you your figures are useless for Cities at least .
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