Over the past 2 years we have come across more and more tenants seeking shorter tenancies, or a tenancy with a break-clause allowing them the freedom to serve notice during the fixed term. The reason given – “we are saving up to buy our own home”. Having said that the numbers are pretty low when compared with tenants looking for a more secure type of tenancy giving them a fixed period of certainty.
We have read reports that up to 2/3rds of tenants are saving up for a deposit, with many prepared to look further afield in order to make their home ownership dream a reality. Elsewhere we have read that less than 50% of tenants have anything currently saved towards a deposit.
Is the desire to own your own home anything new? Well no…., perhaps new to some is the realisation that if rents continue to rise the ability to save for a deposit becomes more difficult.
It wasn’t too long ago when 100% mortgages were easy to find and whilst small deposit mortgages are readily available, a change of market and personal circumstances could pose a risk.
What if a buyer borrows 95% and 2 years later prices drop? The homeowner, once tenant, could find themselves in negative equity and unable to sell.
Why would they want to sell? Perhaps having fallen on harder times they are unable to afford the mortgage payments. Interest rates may have gone up; the initial fixed on their mortgage may have come to an end with deals no longer as favourable as they once were. Selling their London home and relocating to a more affordable area could well be the best option, but negative equity could see them unable to do so.
I guess the homeowner, once tenant, could seek permission from their lender to let out the property and become a landlord, whilst moving to somewhere more affordable and renting.
Those of us who are a little more “long in the tooth” will appreciate the risks attached with taking out a hefty mortgage and renting does offer is flexibility, the freedom to move about, less risk and less responsibility, and whilst the vast majority of tenants want to own their own home, the private rented sector does provide an alternative to those not looking to commit to a mortgage just yet.
For the many who do want to buy it has never been more difficult to save for a deposit. The sums involved can be enormous so unless something significant were to happen then renting for some will remain the only viable option, at least for the time being.