Partner Article

How The Banking Crisis Boosted Property Rental

By Ben Hudson

WITH an apparently healthy stock market, GDP of 0.5 per cent, low inflation and record numbers in work, it would seem little has changed with Britain’s bounce-back from the banking crisis.

However, some parts of the economy have altered. One is home buying. The preferences of what were once first-time buyers are putting property through its biggest change since the 1930s when the UK knocked down inner city slums and built garden suburbs.

The subsequent emergence of an aspirational, home-owning society saw renting demoted to a secondary option for the lower paid who remained trapped in poorly-maintained accommodation because they could not afford to get on the housing ladder.

Since the 1960s higher education boom, tenancy also became the preserve of students. Within a few years, with a degree and in their first job, they would apply for a mortgage.

But now many young, and not so young, people, often with degrees and white-collar jobs, want to rent rather than buy. Although Britain wants to build homes - and low interest rates mean buying is cheaper than renting - many people are turning away from the long-term responsibility of a mortgage.

Even though the economy is recovering, there are no longer any ‘safe jobs for life’ as once existed in banking or the civil service. Many young people live with career and financial uncertainty on short-term, or zero hour, contracts. Instead of buying they want short-term leases on good-quality properties so, if their circumstances change, they can walk away trouble-free.

Even a low-priced property at £150,000, requires a £15,000 deposit and this is a lot when people in their 20s are often paying off student loans of £25,000, or more, and earning only £20,000 a year.

Nor can they rely on “the bank of mum and dad”. Older people have had their savings depleted by record low interest rates and are being told they can expect to live longer, perhaps with debilitating illness and requiring care. No wonder many feel unable to help their children and are relying on a rise in the inheritance tax threshold. /more…

On top of this, divorces, where homes have been sold, also means that significant numbers of single people wanting to rent. Often professional people and used to comfy homes, they demand good quality property.

We are now seeing the property market adapt to these factors. Poor-quality, badly-maintained rental properties are disappearing. Much former student accommodation in cities like York is returning to private ownership.

Another significant catalyst for the emergence of ‘generation rent’, is the growth in buy-to-let. Long-term low interest rates have led investors to buy-to-let properties where rental income remains fairly stable and rising prices can contribute towards retirement.

According to new figures from the Council of Mortgage Lenders, buy-to-let borrowing jumped 10 per cent in September and is now 40 per cent higher than a year ago. During the same period lending to first-time buyers rose by only five per cent.

Generation rent has not come about just because of a shortage of housing. It is an ideological change created by the economy and demographics.

As agents in the housing and buy-to-let market, we are seeing developers, backed by large financial institutions, planning modern, attractive multi-occupancy accommodation with cafes, gymnasiums and a concierge service, half way between a home and a hotel, for an increasingly itinerant society. Tenants will be able to rent for as long or short a time as they wish.

During the next decade, such developments will become common in towns and cities around the UK as part of housing provision, as generation rent digs in for the long haul.

Ben Hudson is managing director of Hudson Moody Estate Agents, York, which also manages rental properties. Tel 01904 650650, http://www.hudson-moody.com.

This was posted in Bdaily's Members' News section by Mike Clarke .