New generation of tenants becomes key housing trend

By 2020 it is likely that substantially more households will be tenanted than was the case at the last millennium, when Scotland appeared to be rapidly catching up with England in terms of levels of owner-occupation.

What will be different from the 1970s – when a majority of Scots still lived in council housing – is that these homes will be rented privately and the rates charged will be based on market forces rather than set artificially for reasons of local politics.

At present most longer-term private renters are doing so by default – ie, for a variety of reasons they are unable to buy a home or are former homeowners taking a break while the market completes what is likely to be a long correction.

However, as their numbers grow some will inevitably look upon a tenancy as an alternative to owner-occupation – especially if the financial institutions become involved, bringing about economies of scale that lead to ‘clear blue water’ between the costs of rents and mortgages.

The majority will probably still aspire to home-ownership; even today this seems the most plausible option for ‘settled’ individuals, couples or families. But inevitably, others will be drawn towards the ‘European’ concept of renting, attracted by advantages such as low upfront costs (between one and two months’ deposit is the norm); the negation of any financial responsibility for major repairs and upgrades; and the convenience of being able to trade up, trade down or move to another part of the country without the cost (and stress) of marketing a property.

People with intentions to rent long-term will, of course, be looking for improved levels of security of tenure but that could be provided without a change in the law; if there was evidence of demand among tenants for something stronger than the current short-assured tenancy, market forces would eventually respond.

The growing popularity of unfurnished lettings (with tenants moving in their own furniture) is a sign of rented property being treated as a home rather than just a temporary roof over one’s head. The market has moved to such an extent that a landlord can secure almost the same rent for an unfurnished property as for a similar one already furnished.

To what extent renting grows will depend on economic factors unrelated to the housing market. People have always looked upon home ownership as a hedge against inflation but at present (and for the foreseeable future) we have a combination of price inflation and a deflation in house prices. Someone buying a property now, for the first time, may need to live in it for several decades before its value rises above that of general inflation.

And what of the great interest rate conundrum? Owner occupation is only cheap (in comparison to renting) because the base interest rate is at such a historically low level right now.

Someone who bought their first home in the 70s or 80s would in those days consider a base rate of 4 per cent to be incredibly low; but if the rate were, for some reason, to rise to 4 per cent now, many thousands of Scots would have extreme difficulty meeting their mortgage commitments.

Nowadays, many mortgages are only being approved if the borrowers can provide a substantial deposit, which is extremely hard on the first time buyer. So this leads to a down payment of £30,000 on a flat that costs £150,000 whereas a similar property could be rented (perhaps with furniture provided) for a deposit of less than £1,000.

Despite all this, however, many people will still strive for home ownership for the same perceived reasons as those before them – that owning a home provides a financial cushion in later life and is a legacy to be passed on to one’s offspring will always be a strong argument.

The feeling will also continue to persist that a lifetime of paying rent is money ‘wasted’, even though when all non-mortgage costs are taken into account over a 25-year period (such as legal fees, repairs and upgrades) then the rental route may in fact be substantially cheaper, giving a higher disposable income to be spent now or putting away the surplus money for several decades to make life easier after retirement.

But that all depends on economic life as we knew it before 2008 – before Lehman Brothers, RBS and, more recently, the Eurozone crisis – returning to normal. The hope is that this will still happen but it may be a long time coming. In the meantime, a growing proportion of Scots will look upon renting as a long-term rather than transient option.

• David Alexander is owner of DJ Alexander, the Edinburgh- and Glasgow-based firm of letting and estate agents