First-Time-Buyers will end up paying a staggering £52,900 on rent before getting onto the property ladder.
This new figure has been revealed in a survey by the Association of Residential Lettings Agents (ARLA Propertymark); the figure jumps up to an average £64,400 once associated house buying costs are added.
In London, the situation looks even bleaker, with average rent increasing to £63,318 and over £90k when including the purchase of a property.
And just to put a bigger dampener on things, all of these figures are based on someone buying a property in 2015. When you run the figures for an 18 year old moving out in 2016, and renting for the current average of 13 years, the situation looks even worse: £64,430 as a national average, £91,458 in London and £70,806 in the South East.
Why Owning Property is Important
There’s huge negativity surrounding the culture of renting over owning property, and these figures only go towards strengthening this ideology.
Rents continue to increase, completely out-inflating wages, and while tenants’ rights have improved (a 6% decline in court ordered evictions in 2015), renting still lacks the stability that owning your own property provides you.
The fact is, it is important to own a property, if only for the stability it provides when you have dependents and when you retire.
Many millennials aren’t even thinking about their retirement and pension savings, because it seems so far away, and also because saving for a home seems the more sensible and desirable goal. It’s possible the state pension system as we know it may not even exist by the time retirement age rolls around.
Owning a property will go some way to securing a reasonable standard of living in retirement; not only will the equity of the home open up options for downsizing or funding social care, but not being required to pay rent (or a mortgage, hopefully) should mean more disposable income for a good quality of life.
The problem though, is that current British society over-emphasises the necessity of property purchase at a young age.
Am I Burning Money?
“Renting is burning money”
“You’re throwing money away by renting. You’d be much better off buying a place of your own!”
“How much on rent? I pay less for my mortgage, and it least it’s going towards my future”
If you’re a renter you’ll have no doubt heard every one of these phrases – or at least a variation of them - uttered by property-owning friends and family members.
And yes, £53,000 is a lot of money.
But should you really be concerned that you’re paying off your landlord’s mortgage (or even paying for their retirement), rather than your own?
The arguments above sound sensible relevant. But it needs to be argued that paying for rent is paying for a service.
As one commenter on the Guardian’s article about the first-time-buyer’s rent bill put it:
“Paying for use of a property is no more ‘money down the drain’ than paying for food, heating and electricity”
There are numerous reasons where renting is much more preferable than owning a home for the vast majority of people, particularly young professionals in big cities.
When you take out a mortgage on a property, you’re putting down firm roots. You’re lending a huge amount of money from a mortgage provider, and promising you’ll pay back the money (with interest), often over 20 or 30 years.
Now, nobody expects you to stay in the same home for lifetime of your mortgage. But having a mortgage pretty much guarantees that you’re going to be in one place for a number of years, and committing yourself to do so.
With renting, there is no commitment.
Sure, you may sign a lease for 6 or 12 months; but ultimately, the flexibility and opportunities that renting lends you is huge, particularly for the youngest in society.
We’re living through an unstable job market in the UK, with stagnant wages, an on-going housing crisis and welfare support being cut, all factors that are forcing many young people to look abroad to achieve the career goals set for themselves and find the quality of life that they were promised growing up.
As Guardian commenter graham3182 put it, “I paid about £45k in rent in 10 years in London before buying in 2014. For most of that I wanted flexibility as I went travelling for six months in 2009 and then worked overseas in 2013.
“[I had the opportunity to buy a property but] had prices fallen or I'd not been able to cover my costs (interest + repairs) while away I almost certainly wouldn't have been able to go.”
Around a fifth of under-25s expect to leave Britain for opportunities abroad by the time they’re 40 years old.
Even without thinking internationally, if you’ve just put down a mortgage deposit on a property in Manchester, you’re not likely to be upping sticks to London, no matter how good the job opportunity.
A Mortgage Isn't Always Cheaper
It’s a huge misconception that mortgages are always cheaper than rent.
Let’s do some maths to demonstrate the point.
Let’s say you purchased a property for £200,000. You put down a minimal 10% deposit (£20,000), and borrow the remaining £180,000.
At an interest rate of 5%, over 30 years you’ll pay £168,860 in interest alone; a total of 348,860.
That’s over £5,000 a year! Not too dissimilar to the £53k in rent you’ll have paid in those 13 years as a tenant; then there’s the actual house equity you’re paying off at the same time.
One thing that’s not taken into account when mortgage lenders, in-house financial advisors and even your property purchasing friends tell you how much cheaper a mortgage is? The maintenance costs.
With the above example, the monthly mortgage payments will be over £900 a month. Even if you’re paying more than this in rent, you have no maintenance and upkeep costs to worry about!
If your own boiler breaks, that’s upwards of £1,000 out of your emergency fund; but a quick call to your landlord should have it fixed or replaced as soon as possible.
Got a leaky washing machine? Pay an expensive call out charge or buy a replacement; renters can just call their landlord.
Yes, there are some nightmare landlords and letting agents out there, and agency fees when moving from property to property can be a huge financial drain; but a good relationship between a tenant and a landlord can last longer than most marriages.
We're All in This Together
If you’re renting, and have seen friends and family members getting on the property ladder, it can start to feel like you’re trailing behind in life. But just know that you’re not alone.
Renting is the done thing nowadays.
From student halls and grotty house shares at University, through moving to a big city and chasing a career, most young people (and many middle-aged people, too) don’t have the desire or the financial resources to put down a deposit on a 30 year home loan.
New research from PwC shows that 60 per cent of London’s population is expected to be made up of renters by 2025.
A number of news outlets that reported on the initial ARLA Propertymark research claimed at 20 percent of those renters surveyed felt they’d never own their own home. But that means there are still 80 per cent of respondents – a huge majority – who do feel confident that a property purchase is in their future and is attainable.
But as property prices continue to out-increase wages, mortgages become more and more difficult to obtain. In turn, young people must flock to the big cities for the job opportunities they’re looking for, driving up rents and creating a vicious cycle of ever-increasing costs.
Easing the Rent Bill
There’s a big demographic that want to see this rent bill decreased, not least the Government. They’ve recently introduced a number of policies aimed at easing house prices, as well as cutting down the number of Buy-to-Let landlords flooding the UK housing market.
A stamp duty increase on second-homes as well as cuts to landlord’s tax breaks is aimed at easing the Buy-to-Let epidemic. It will likely just lead to increased rents as historic landlords aim to cover these costs by passing them onto tenants.
Dealing with the ever increasing house prices and rising rents is clearly a huge task, and it seems nobody quite has the answer that will suit everybody.
In the meantime, the Government has recently commissioned 30,000 affordable homes to be built in the next 5 years
The First Step of the Property Ladder
It’s important to clarify that not everybody wants to rent forever. And as outlined earlier, there are a number of reasons why owning property is important for many of us.
While getting onto the property ladder may seem like an impossible task at times, the majority of renters are confident they’ll own a property in the future, and there are ways you can make securing a mortgage much more achievable.
In London, where private rents and house prices are becoming unaffordable for individuals, buying properties between friends is becoming increasingly more popular.
Not only should you have a bigger deposit, but the combined income of a number of friends (there can be up to four people jointly registered as co-owners on a property) will mean that the mortgage offered as a multiple of your income opens up more property options.
Of course, this sort of purchasing comes with its pitfalls, including being on the same page when the time comes to sell up, and even down to the smaller points such as who gets the bigger of the rooms. Consult an independent financial advisor and your solicitor, and be realistic about your joint futures; complete understanding is key in this situation.
With Santander predicting that 39 per cent of joint property purchases will be between friends, family members and unmarried couples in the coming years, it’s clear that this is becoming a more favourable option for young people striving to get out of the rental rat-race.
Help to Buy
When it comes to saving for your deposit, it’s worth taking full advantage of the savings vehicles that have been introduced for First Time Buyers.
The Government’s new Help to Buy ISA was introduced in the latter half of 2015, and offers a 25% Government bonus on any savings held in it that go towards the mortgage deposit on a first home.
You can deposit £1200 in your first month, and up to the £200 in each month thereafter, with a total bonus of up to £3,000. But if you’re buying as a couple, or friends, you can each hold a HTB ISA meaning a potential bonus of up to £6000.
If you’ve got savings already, syphon them across into a HTB ISA at the £200 a month limit. Even if you’re about to go through with a purchase, any bonus is better than none – and with the £1200 initial deposit, that’s an extra £300 right off the bat.
Reasons to be Cheerful
If the idea of spending £53,000 on rent is triggering panic and despair, then it really shouldn’t be.
UK society needs to accept that renting is an acceptable an even favourable way to live for a huge share of the population. Paying for rent is paying for a service, and provides flexibility that a mortgage and home-ownership simply can’t, particularly when you’re young and forging out a career path.
A vast majority of the UK population are still confident they’ll be able to afford a property in the future. Yes, it has become much more difficult with rising house prices and flat wages, but there are options out there for many of us.
In the meantime, forget about the naysayers that tell you you’re burning your money and simply lining your landlord’s pockets.After all, that dream European job offer may be just a month away.