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OPINION

Tenants want to be homeowners

Tenants want to be homeowners
March 23, 2018
Tenants want to be homeowners

So, despite the Treasury’s series of tax grabs on private landlords, demand for rented accommodation remains strong and is here to stay. However, recent research by property service specialist Kinleigh Folkard & Hayward has found that while nearly three-quarters of London’s private tenants are happy to live in a rented home, given the choice two-thirds would prefer to own their own home. This runs against a commonly held theme that renting is a lifestyle decision, whereas for the most part it’s the only option. In fact, only a quarter of all tenants stated a preference for living long term in rented property.

But the chances of achieving home ownership appear to be lessening because despite the stamp duty holiday for first-time buyers announced in last Autumn’s budget and low mortgage interest rates, houses remain expensive. And this is despite recent price weakness, which has seen average prices in Southwark, for example, down by 12 per cent in the past year and 9 per cent in Islington. But this in itself presents a dilemma for potential buyers. Who wants to mortgage themselves up to the hilt to buy something that is falling in value?

It may well be a triumph of hope over experience, but it is the youngest renters who are the keenest to buy. But where to live remains a problem. Over half of renters choose to rent because it allows them to live in an area that they would not be able to if buying a property. But with the average monthly rent per household touching £1,600, it leaves many people unable to save for a deposit anyway, leaving them as prisoners of their own choice.

Rents drop if you move into the outer boroughs, which in many cases are just 20 minutes away from the centre of London. And this is where there is a greater percentage of households that include non-contributors to rent, like children. And even here there are inconsistencies. Average monthly rent as a proportion of net tenant income is around 41 per cent in Bromley, whereas a few miles away in Bexley it’s just 28 per cent.

Security of tenure and other tenant priorities mean that the ever-growing number of build-to-rent institutional landlords are in a position to offer several add-on facilities that can be accommodated in multi-let buildings. However, unlike in purpose-built student accommodation, it must come as a surprise that the likes of gymnasiums, entertaining areas and high internet speeds come well down the list of preferences. Top of the list of tenant priorities include price and location, perhaps unsurprisingly so. These are followed by the length of the tenancy agreement, proximity to decent transport links and rents with services included. And of these, perhaps the length of the tenancy will begin to assume greater importance.

Increasingly, institutional funds are being channelled into residential property. The lure of a steady rental income and capital appreciation over the long term comes as a welcome change to the paltry returns offered on traditional low-risk investments. And Legal & General Capital has gone past the joint venture point by buying out the stake it didn’t already own in CALA Homes.

But the building environment is still far from ideal, as London-focused builder Berkeley Group (BKG) recently made clear. Acknowledged as one of the best-run housebuilders, Berkeley revealed that it has no intention of increasing production beyond existing business plan levels. Why not? Berkeley points to the high transaction costs; limits on mortgage/income multiples; a squeeze on buy-to-let investors who buy early in the construction cycle and provide cash flow, and last but not least, the complexity of getting on site following planning approval. Seems as though there is still plenty to be done to accelerate the number of homes being built.