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Britain, a Nation of Renters?

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Home ownership across England was at its peak in April 2003, when 71% of households owned their homes, but the figure fell to 64% by February this year, according to a new report by the Resolution Foundation thinktank. The report also shows a big slump in home ownership in Greater Manchester and cities in Yorkshire and the West Midlands. This figure is the lowest since 1986, when home ownership levels were on the way up as a result of policies introduced by the Thatcher administration.

Today, the UK is populated by a generation of renters, with the number of UK households renting property having risen from 2.3 million in 2001 to 5.4 million in 2014 according to the Royal Institution of Chartered Surveyors (Rics).

Here are 5 reasons why buy-to-let or rental property will remain crucial in the UK for some time to come:

Savills calculated the cost of buying vs renting a home. Image credit:

Reason #1: It’s about 20% cheaper to rent a home in the UK on a monthly basis than to buy (Savills)

Renting a home used to be 25% more expensive than owning back in 1996, but in 2007, it became 79% cheaper to rent than buy your own.  When the costs of capital repayments on a mortgage in Year 1 are factored in, costs rise and renting becomes significantly cheaper than buying on a month-to-month basis. In order for a first-time buyer’s monthly costs to be lower than the costs of renting, the purchaser would require, on average, a deposit of at least 39% of the value of the property, according to Savills’ calculations.

Growth in house prices vs wages in the UK as at Jan 2016: While UK house prices increased by 7.9% last year, figures from ONS show that the UK median wage increased by just 1.8%. This suggests that house prices are growing more than four times as fast as median wages. Source: ONS. Image credit:

Reason #2: House prices too high in proportion to wage growth

Despite recent figures from mortgage lenders showing an increase in the number of loans taken out for house purchases (possibly due to low interest rates), the number of homes for sale is close to a record low, and prices continue rising.

A typical home in the UK now costs six times average annual earnings despite slowing house price inflation. According to Nationwide, house prices have risen by 20% over the last three years while wages rose by just 6%.  Meanwhile, prices in the capital are 9.2 times average earnings, while the Royal Institution of Chartered Surveyors (Rics) said 22% more surveyors in London expect sales to fall over the next three months. The last time prices/earnings ratio was so high was in March 2008. A ratio of 4.5 times a borrower’s income is regarded as the maximum that banks and building societies will agree to lend.

Over in Greater Manchester, the proportion of home owners dropped from 72% in April 2003 to 58% this year. According to financial analyst Louise Cooper, the average house price in England in 1986 was £38,000 but today it is £226,000 (Rightmove’s latest report on average asking prices for a home in England and Wales in October 2016 now stands at £309,122). And that over the same period, the average salary had only gone up 2.5 times. “Everyone says it is a London problem. It is not,” said Cooper.

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Renting privately is now the norm, according to a PwC report, for those who cannot afford to buy but do not qualify for social housing. By 2025, PwC predicts that 7.2m households will be in rented accommodation, compared with 5.4m today and just 2.3m in 2001. Source: PwC. Image credit: Guardian

Reason #3: Private rented sector – biggest provider of rented homes

The private rented sector has taken over from councils and housing associations as the biggest provider of rented homes with prices paid by tenants in Britain increasing by 2.3% in the 12 months to Sept 2016, according to latest official data. The number of households renting from a private landlords stands at 4 million while the number of those renting from a council or housing association stands at 3.7 million. Statistics peg the number of renters in the UK at 5.4 million as at 2014, but Rics predicts that at least 1.8 million more households will be looking to rent rather than buy a home by 2025. An analysis published last year by PwC suggests that 7.2 million households will be in rented accommodation by 2025 compared with 5.4 million in 2015 and 2.3 million in 2001.

According to the English Housing Survey, four in 10 renters in the growing private rented sector do not expect to ever buy a house and of those who do, 44% expect to wait more than five years before they can afford it.

House building has abysmally failed to keep pace with Britain’s population explosion, a crisis that was further exacerbated following the financial crisis that induced a slump in house building as the graph shows the UK annual population change against annual new housing build completions. Data source: ONS. Image source: Market Oracle

Reason #4: The UK has an undersupply of housing

It is an old refrain, but the UK is facing a critical undersupply of housing even up till today. In late 2015, the BBC published an incriminating article on the shortage of housing in the UK, citing the Labour government’s failure to build 240,000 homes by 2016 — a target set in 2007. The Barker Review of Housing Supply had noted in 2005 that about 250,000 homes needed to be built every year to prevent spiralling house prices and a shortage of affordable homes. The closest the UK got to hitting the target was in 2006/07 when 219,000 homes were built. During the EU Referendum campaign, Brexit-backer Iain Duncan Smith said the UK would need to build 240 houses a day for 20 years to cope with increased demand, a claim that has been substantiated by the BBC. And the consequence of undersupply and high demand? Skyrocketing prices. With house prices at unaffordable rates, the only other option would be to rent.

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Trivia 1: #DidYouKnow that for decades after WWII, the UK used to build more than 300,000 new homes a year? Now it’s about half that amount.

Trivia 2: In May 2014, BoE governor Mark Carney complained that housebuilding in the UK was half that of his native Canada despite the UK’s population being twice its size.

Home ownership is clearly declining among those within the younger age group. This is caused by a number of reasons including affordability and, increasingly, preference (lifestyle).

Reason #5: Lifestyle – the increasing preference for renting vs buying

While for some it is an economic choice, more are choosing to rent their homes over buying due to lifestyle. This shift is being prompted by younger workers today, also known as the Gen-Y demographic who are setting down later in life and changing jobs and careers with more regularity than their parents. This generation are marrying and having children later in life, allowing them the freedom to move as they want and when they want.

A research conducted by AXA discovered that less than 50% of the research participants are renting because they cannot afford it compared to the 67% in a study performed in 2013. The research revealed that many enjoy the freedom and flexibility of being mortgage-free. Thus the idea of being tied down to a mortgage and a single location is preventative for a workforce that wants to remain transient.


Owning property for rental in the UK is a good investment. It is important, however, to be aware of the costs involved and to be prudent about where you should invest in buy-to-let in order to maximise your returns.

CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts. 

Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.

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