To rent or buy? The question which splits first time buyers


English HomesNew data has painted a confusing picture of the first time buyer housing market.

The Council of Mortgage Lenders (CML), has released figures which show the number of first time buyers rose by 41% in July 2013, compared to the same time last year. In contrast, research from insurer LV=, formerly known as Liverpool Victoria, has shown many people of first time buyer age are happy to continue to rent.

First time buyers on the rise

The CML data shows a total 25,300 loans were granted to first time buyers in July, well down on the height of the housing boom, but up significantly on the same time last year.

Are you looking for mortgage advice?

Linda Wood, Investment Sense mortgage adviser in Nottingham

Contact Linda Wood today:

0115 933 8433

Online enquiry form

Since the credit crunch and subsequent housing slump, the number of first time buyers has fallen, mainly due to tougher mortgage lending criteria and the demand from lenders for larger deposits.

However, since the introduction of Government initiatives, such as the Funding for Lending and Help to Buy Schemes, conditions have eased for many first time buyers; allowing them to jump onto the housing ladder.

Happy renters

Despite the leap in the number of first time buyers, the research from LV= shows that many people who could buy a home, are happy to continue renting or perhaps still can’t afford to buy, despite the various schemes available to help them.

The LV= survey found:

  • 52% of people under 35 live in a property owned by someone else
  • 42% of renters under the age of 35 are happy to continue doing so for at least another 10-years
  • The average tenants pays 39% of their income in rental payments

The research also uncovered a worrying trend, with two thirds of renters having no cash buffer or safety net to pay their rent, if there were unable to work due to accident or sickness.

Mark Jones, Head of Protection at LV= said: “It’s important to realise that renting does come with certain pitfalls that often aren’t signposted. When buying a property you are encouraged to take out an insurance policy to guarantee repayments in the event that something happens to the mortgage payer, no such prompt exists in the rental market. We know that one third of Brits currently rent and that 65% of these people have no insurance in place. This would leave a huge number of people in the UK in a vulnerable position if they found themselves unable to cover their rent and living expenses.”

“Regardless of whether you are a homeowner or a tenant, it is important to have a financial back up plan in place which would enable you to carry on living in your home if you were unable to work. This is particularly important if any loss of income might affect your partner or family’s ability to pay the rent.”

Changing attitudes

The LV= survey seems to have uncovered a significant shift, in the way people in the UK feel about owning their own home. The survey found that 93% of people aged 55 – 75 saw owning a property as their ‘ultimate goal’, this figure drops massively to just 33% amongst people aged 35 and below.

When asked, people gave a variety of reasons for their positive attitude towards renting:

  • 17% did not want to be tied down to one property
  • 13% wanted to test out an area before making a larger commitment
  • 10% simply had no desire to buy a property
  • 7% would rather spend their disposable income elsewhere

Furthermore, despite the recent surge in first time buyer activity, plus concerns that the Help to Buy Scheme is set to cause another housing bubble, 79% of the 1,700 people who took part in the survey, said it hadn’t motivated them to buy a home.

Buy or rent?

It’s highly unlikely that data from an industry trade body, or indeed a survey from an insurance company, will affect the decisions taken by would-be first time buyers.

What does seem clear though, is that views amongst younger generations are polarising, with many people taking advantage of Government initiatives, whilst others take a positive decision to rent.

Of course, there are still people, especially those living in London, have no deposit or are in low paid employment, who want to get onto the housing ladder, but still can’t afford to do so, despite the help currently available.