I spent Wednesday at a conference in Brighton – the Chartered Institute of Housing South East Conference. Last year – when I also spoke – the talk was all about house prices, when they would recover and how much they would then go up. This year it was not – there was more of an acceptance that house prices probably aren’t going anywhere.
I wasn’t even the only bear at the Hilton. Far from it – Oliver Kamm, a leader writer for The Times and long-time critic of the UK housing market, was marching up and down the platform promising that prices would fall 30% from here and that the UK property market is at least as ropey as that in Ireland.
However the most obvious sign of a shift was the title of the session at which I spoke: it was on the private rental sector and asked the question ‘lifestyle choice or the only choice?’ Clearly for most young people these days, the answer is ‘only choice’. There are many more high loan-to-value (LTV) products on the market than there were two years ago, but that doesn’t make them easy to get. If you want to be sure of getting a loan you still need a good deposit (25% is OK, 40% should do it); you need a high and regular income; and you need a very clean credit record. That’s why there are 90% fewer first time buyers than there were in 2006 and why the average age of a first-time buyer is 37.
You can argue for days about whether that matters to house prices or not (there is still a deluded sub-sector of society who think that buy-to-let investors can pick up the slack). But the fact remains that with only 45,000-odd mortgage approvals going through a month vs 130,000 at the peak of the boom, an awful lot of people who might once have bought will now have to rent instead. It is the only choice.
However given the high tax and high cost nature of buying houses in the UK one might wonder if, for those in their 20s at least, it shouldn’t be a lifestyle choice as well. Work isn’t that easy to come by these days, something that means workers have to be flexible: they have to be ready to move cities and possibly even countries to follow jobs.
But imagine if a 27-year-old could buy a £300,000 house somewhere in the UK with a mortgage. It’ll cost him £1,000 in arrangment fees plus another £1,500 odd in legal and other fees. Then it’ll cost him £9,000 in stamp duty and he’s very likely to spend another £2-3,000 on improvements of one kind or another when he moves in (curtains and new bed and so on). All in, he’s going to be down ten to fifteen grand or so on the costs.
How mobile a worker is he now? If he sells up – even if he gets the price he paid, which in today’s market he probably won’t – that money is gone for good. And if he moves without selling he is stuck with all the admin and financial problems that come with being an undiversified small landlord (voids, repairs, low yields, non-payment of rent).
Look at it like that and, even before you take in falling prices, a house is surely less a source of great joy than something of a millstone to a young and ambitious person. So it would seem to me that at least until you have children and so need security and residential certainty in your home life (i.e. you need to know where they will go to school) you are better off choosing to rent – even if by some miracle of the mortgage market you are able to buy, and even when ultra-low interest rates make it look cheaper to buy than to rent in some cities.