Millennials renting an average sized property outside of London, who began their tenancy at age 21, will spend an average of £110,830 of their household income on rent payments before they can buy their first home. This is the finding of the second edition of the National Rent Review from buy-to-let lender Landbay, powered by MIAC.
The report also reveals that UK rent prices have shrunk towards the end of 2017, as a year of declining rents in London weighs down the UK average.
Rents across the UK began to shrink for the first time in over half a decade towards the end of this year, falling by 0.01% in November, as a two-speed market emerged between London and much of the rest of the UK. The average rent paid for a UK property grew by 0.53% over the year to date, with falling rents in London (-0.83%) weighing down otherwise resilient rent price growth elsewhere (+1.27%).
National rent prices
November’s 0.01% decline in average rents marks the first time that rent price growth has entered negative territory in at least half a decade. The average UK rent has now plateaued at a record £1,196 per month – up from £1,190 at the beginning of 2017. Removing London from the equation puts the average monthly rent at £759 – up from £750 at the turn of the year. This is an extra £9 per month, or £109 per year.
The slowdown in rent price growth has not been consistent across the country. The East Midlands (2.13%), South West (1.63%) and East of England (1.57%) experienced substantial growth in 2017 so far, and are expected to climb further as we head into 2018. The North East has also seen rents grow at a faster rate in 2017 than at any other time in the past five years (0.65%).
It is London that has experienced the greatest reversal of rent price growth, with November marking 18 months since rents in the capital first entered negative territory. London continues to be the main source of the UK’s slowdown, with prices falling in 26 of the 33 boroughs. Rents have dropped by 0.83% in the year to date, compared to 1.27% growth elsewhere in the UK. Despite the narrowing gap, London rents remain, on average, 2.5 times higher than those across the rest of the UK (£1,871 per month, compared to £759).
John Goodall, the CEO and Founder of Landbay, says: “Landlords have faced up to challenge after challenge over the past two years, from stricter regulation, reductions to tax relief, and a significant Stamp Duty tax hike when buying a buy-to-let property. One would expect this pressure to push up rents, but two key factors have allowed them to shoulder these rapidly rising costs: the Bank of England’s enduring Term Funding Scheme (TFS), which has injected a significant sum of cheap capital into banks, together with record low interest rates, which have also kept borrowing costs low.
“With interest rates now rising, and the TFS coming to an end in February, we expect upward rental pressure to be just around the corner. Without a radical housebuilding plan for purchase, as well as purpose-built rental properties, rental prices are in danger of soaring over the coming decades.”
Millennial spending on rent
The report also looks into how much millennials will spend on rent either before they buy their own homes or over their lifetimes.
Millennials renting an average sized property outside of London, who began their tenancy at age 21, will spend an average of £110,830 on rent payments before they buy their own homes at the average first time buyer age of 32-years-old. For those renting in the capital, where house and rent prices are significantly higher, the average household will have spent £273,210 on rent by the time they take their first step onto the property ladder.
However, as it stands today, 41% of millennials don’t expect to ever own their own homes, relying instead on the private rental sector to support them throughout their lives. For this emerging generation of lifetime renters, the total amount that they will spend on rent will be an average of £1.1m if living outside of London. Again, those choosing to live in the capital will spend 2.5 times this figure – a total of £2.6m.
For the fortunate millennials that are able to buy their first homes at the age of 32, they will have spent 34% of their post-tax household income on rent throughout their 20s and early 30s. Meanwhile, those renting for life and retiring at the future state pension age of 68 will have to save for 15 years of rent payments in retirement, and will therefore spend a greater proportion, some 44%, of their household income on rent by the time they reach the average life expectancy of 82-years-old.
Goodall comments: “While younger people have always been overrepresented in the private rented sector, over the last decade, there has been a marked increase in the proportion of younger households relying on the buy-to-let market. The Government is giving off strong signals that it is ready to tackle the supply shortages gripping the nation, while also improving standards, affordability and the institutional supply of rental properties in particular. This can only be good news if it becomes reality, but, with so many of the issues being systemic, only time will tell if these measures will have the desired effect.”
With millennials spending so much of their incomes on rent, we remind all landlords to ensure they provide the safe, secure and comfortable homes that their tenants need.
In order to stick to the laws governing the private rental sector, our partner Landlord News offers comprehensive, free guides on the legislation and regulations that you need to comply with. Download them here: http://landlordnews.co.uk/guide/