News and Press releases

Why buy when you can rent?

23/09/2010

A generation after the Thatcher government massively boosted owner-occupation by giving the go-ahead for the sale of council housing, Scotland is showing signs of becoming a nation of tenants again, according to some letting agents.
David Alexander, proprietor of Edinburgh- and Glasgow-based DJ Alexander, says that demand for rented accommodation is at a level “unprecedented in my 28 years in the business”. Even more significantly, an increasing proportion of this demand is from families, rather than young singles or couples who traditionally formed the core of the rental market.
Mr Alexander said that the firm had a waiting list of potential tenants, “whereas three years ago we might have just managed to fill all the properties on our books”.
While in the main this will be down to those who are simply unable to secdure mortgage finance, demand has become particularly strong for houses with gardens because of the growing numbers of coupes with children who see no point in buying at preset because of low prospedts of capital appreciation.
“A good example of this is the traditional Corstorphine or Bearsden bungalow; three years ago we could not rent them out for love nor money but now we cannot get enough of them,” said Alexander.
And while houe price indices show little or not growth, Alexander believes that prices will have to fall significantly lower if owner-occupation is to un dergo a revival and that the omens are not good.

He explained: “Some people cannot afford to drop their asking price because they bought at the top of the market and have little or no equity in their property. However, there are vast numbers of others who moved into their present houses in the early part of the decade and who – until the banking crisis hit in 2008 – had built up huge amounts of equity, at least on paper.
“It is the figure that their houses were worth in 2008 that sticks in their mind and they are hugely reluctant to put them on the market at prices significantly below. But eventually they will have no alternative: we are cutting back on police, on hospitals and on education, so why should house prices be immune?
Until then Alexander believes more families will have no alternative but to rent – to the extent that some may never return to owner-occupation.
Mr Alexander said: “Over time, house values will start to rise again but it will be nothing on the scale of the past two decades when, in some cases, we had double-digit house price inflation year on year. Therefore, over a period of 15 to 20 years capital growth is likely to only modestly stay ahead of inflation, which may encourage couples and families to rent their homes on a long-term basis and look for some other means of building up a capital surplus.
DJ Alexander is reporting a rise in rentals being paid as a result. In the past week they’ve let five properties in Edinburgh an average rental of £3,000 including a penthouse flat in the heart of the New Town for £4,000 a month; a property that would sell for £1 million.
For the new tenants the figures add up. Alexander says: “If you think that a property worth £1 million will automatically cost a buyer £50,000 in stamp duty plus much more in legal fees, servicing the debt and then selling fees, then you are talking about perhaps needing at least a 10 per cent rise in the market value of that house before you break even. Renting the same place for £4,000 a month may cost you £48,000 in a year but it is less than servicing a loan of £1m so there would be money left over to build up a nest egg, instead of relying on equity.”
Alexander believes that equations such as this may mean that some people see renting as a long-term option and not just a stop gap while they look to buy. “We have got used to our homes earning us money but perhaps that will change. The new renters have no desire to own their own home and they are thinking long-term.”

THE SCOTSMAN, 23 September 2010

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