Normally the inference taken is that most of these tenants are would-be home-owners, frustrated by a combination of soaring prices and the large deposits now being demanded by lending institutions.
However, the popular conception that just about everyone currently renting their home is an unwilling tenant is simply not the case. That annual rental payments are now running at around 90 per cent of annual mortgage payments suggests quite a few tenants must be fairly happy with their lot.
Coincidentally, an interesting take came this week from Helen Gordon, chief executive of Grainger, one of Britain’s largest residential landlords. Promoting the view that home-ownership means less to young people today than it did to their parents and grandparents, she makes her point succinctly thus: “They rent their cars, they rent their phones, they rent their music. They don’t have that same concept of ownership as perhaps an older generation did.”
I could not have put it better myself. As the boss of a letting and estate agency, I do not have any vested interest in “talking up” demand for rented accommodation. Quite simply, while not in any way ignoring the continuing high demand for home ownership, the market intelligence I am getting points to growing numbers of young people going down the rental route by choice.
Yes, some of them started off as frustrated would-be homeowners. But attitudes begin to change when they compare the deposit on a tenancy, in many cases under £1,000, with a mortgage deposit 20 or even 30 times that figure. Then they begin to appreciate the flexibility of renting, such as moving out at a month’s notice with no agency fees or surveyor or solicitor bills.
A more recent driver of rental demand – at least from our experience in and around Edinburgh and Glasgow – is the way some people use long-term renting as an opportunity to live in superior accommodation that they simply could not afford if they were buying. This could mean, for example, a spacious house in the suburbs or an address in Edinburgh’s New Town or Glasgow’s Park Circus. Recent legislation which has greatly enhanced levels of security of tenure in privately-rented properties has made this option more attractive.
Of course these homes will never be “theirs” to own, so a popular move is to invest in a modest flat in an easily-lettable location and build up a financial nest-egg through capital growth and rental income. This, of course, raises the spectre of inheritance deficit at some stage in the future. However, parents believe providing the best-possible family environment while their children are growing up is more important than thinking about how much wealth can be “passed on” after they die – especially as rising property values means a big chunk of it could be swallowed up in IHT.
Now, back to LBTT, or Land and Buildings Transaction Tax, the Caledonian name for the simpler “stamp duty”. This, as any agent will tell you, has seriously hampered the volume of sales at the top end of the market, and done not a little damage to the middle sector, too. But the consequences seem to be even worse.
According to the Federation of Master Builders (FMB), additional rates of tax on property sales have led to more people deciding to improve rather than move and this – inevitably – has led to pressures on the availability of certificated building personnel. So do check the background of the guy who says he “can start the job next week” as this statement may lack a certain veracity is the FMB’s advice.
Just one more reason for finance minister Derek Mackay to conduct a root and branch re-think on the rates of LBTT. But I’m not holding my breath.
- David Alexander, MD of DJ Alexander