Under 40s - Why you should expect to rent in the future

Under 40s - Why you should expect to rent in the future

Following Martin & Co's market intelligence reports released in March, the Office for National Statistics (ONS) has released its own figures that support the shift towards a larger private rented sector in the UK.

Under 40s table

What did the ONS find?

Private renters spend roughly a third of their disposable income on rent, up from 25pc in 2014 and just 16pc in 1986.

Renters in London spend 34pc of their disposable income on rent, dropping to 15pc in the North East.

In 1986, the ONS found that the private rented sector accounted for 7.8pc of tenure, more than doubling to 16.3pc in 2014.

The number of landlords has also risen, accounting for just 1pc of UK households reporting a rental income in 1979, up to 5.5pc in 2013.

 What did Martin & Co find?

The private rented sector accounts for 19pc of all UK households in 2016, up from 10pc in 1986 . similar to the ONS figure of 7.8pc.

We noted a massive 346pc increase of 35-44yr olds privately renting from 1986-2016.

71pc of households aged 16-24 are privately renting in 2016, up from 32pc in 1986.

What is driving the younger generations to rent?

Most importantly, the lack of housing supply is pushing up house prices beyond what people can realistically save for, so renting is becoming a viable long term alternative to homeownership.

First-time buyer deposits equate to roughly £50,000, way beyond the earning capabilities of most people who want to take their first step on the housing ladder. The average UK salary is £26,000 a year.

Take into account that the price of an average starter home in January 2016 was £177,000, a 5pc deposit would equal £8,850, a 20pc deposit would be £35,400 and a 40pc deposit would cost £70,800, nearly three years' salary. A saver could feasibly save up a 5pc deposit but would be tied down into a very expensive mortgage, if indeed they were approved with a salary so low in comparison with house price.

Beyond the difficult saving habits, renting has two key benefits that homeownership doesn't offer. The first is that tenants do not have to deal with the financial risk of fixing major housing issues (fixing a broken boiler or roof, for example), which can be very expensive for those whose disposable income is wrapped up in mortgage repayments.

Secondly, renting offers flexibility. The tradition of “one career in one workplace†is dying out, and workers are increasingly mobile and career-fluid, which isn't ideal when you have a property to pay off. Young professionals and graduates like having the opportunity to go travelling and change jobs; renting allows for this.

What will happen in the future?

Martin & Co's figures suggest that up to one million new households will enter the private rented sector by 2021, and the UK's private rented sector will grow to around 30pc of total properties in the next 30 years.

A growing student population and high net migration will drive demand for the rental sector as more people are priced out of the market.

Alongside this, a higher proportion of people will start renting as a lifestyle choice instead of as a stepping stone to owning a property, especially in the young adult demographic.

Meanwhile, buy-to-let will remain a strong investment tool, especially for older generations who are wealthy enough to purchase the properties that young professionals and families cannot afford.

Renting has evolved significantly in the last thirty years, and this trend will continue going into the 2020s and beyond. If you are interested in investing in a buy-to-let property please contact your local Martin & Co office today.

To gain an insight into the changes that have taken place, please download a free market intelligence from martinco.com/askmartin.