David Alexander comment: Is renting to live and buying to save the future?
However, given the pace that things have moved in this direction, sometimes I have felt like a voice in the wilderness.
Understandably, therefore, I was encouraged by Jane Bradley’s recent report in The Scotsman on the survey by the giant insurance company Direct Line, which seems to conclude that the UK is moving towards a “German model” of housing tenure, with two-thirds of renters saying they have no intention of purchasing a property.
For some of these, the reason is that renting is cheaper (one assumes when all the add-on costs of owner-occupation are taken into consideration); for others it is the flexibility of renting that is attractive. While this outcome more or less parallels my own thoughts, I also realise that for many people there remains one big deterrent to long-term renting: the prospect of paying a landlord for the rest of their lives without any tangible asset to show for it.
This is perfectly understandable. “Rent to buy” would seem the most logical solution to this issue but for reasons I don’t fully understand, schemes of this nature have been slow to take root.
The alternative is to build up a capital asset that enables tenants to enjoy the good things in life (including being able to afford to live in a comfortable rented home) later in life. Two obvious ways of doing this are to increase contributions to a personal pension or to take advantage of the tax-free ISA allowance year after year. Not everyone will be able to afford this, of course, in addition to paying rent, but I am convinced that with the backing of financial institutions and government encouragement for greater structure in long-term renting, the costs of tenancies will reduce substantially. And with no large outlays such as legal fees, no maintenance costs nor the lifelong cost of continuing internal upgrading and modernisation (say kitchens and bathrooms), household budgeting by tenants will become simpler.
Another way forward, not yet widely used but growing in popularity in my own patch, is a policy of what might be described as “rent to live/buy to save”. This is possible because the bigger and better (in terms of quality and location) a property is, the cheaper it becomes to occupy as a tenant compared to paying for it with a mortgage. In other words people who do this are “living the dream”, although these lifestyle renters should not be looked upon as dreamers. While enjoying the benefits of a luxury apartment or high-end basement flat with garden (particularly popular in Edinburgh) – properties that would be beyond financial reach as owner-occupiers – they have also taken the precaution of purchasing a second, less expensive property, ie a former local authority house or a privately-built one or two-bedroom flat. Rental income from the second property covers their mortgage costs on it and, for some, can also provide an annual surplus even after taxation and other expenses. This then provides valuable financial back-up that allows the lifestyle tenants to keep their options open – perhaps to eventually sell the second home and use the profit to buy a “sensible semi” in the suburbs ten years down the line. For others the intention is to keep renting indefinitely, hoping that the return on the flat plus more liquid assets built up during their working lives will enable them to afford to keep renting in retirement, or perhaps to buy a home suited to their needs once, in retirement, they no longer require the flexibility that rented property offers.
As long-term renting grows and Britain moves towards the “German model” of occupation, no doubt the financial services industry will come up with other products that give tenants the opportunity to build up capital assets as an alternative to an owner-occupied property. But the appropriate physical models for people to live in need to be in place first.
David Alexander is MD of DJ Alexander