I often hear people say that young people in the UK worry too much about getting onto the property ladder. Why not be more like some of our European neighbours, who are happy to rent for their entire lifetimes without feeling robbed? What are the facts? Is it true that Europeans differ from us completely when it comes to property ownership?
Property ownership in the UK
There are approximately 25 million homes in the UK, 63% of which are owner occupied. With purchasing property becoming more of a challenge for young people, this figure is likely to fall in the future. It is predicted that by 2025, 50% of the population under forty will be renting. With the average price of a property in London priced at around nine times the average annual salary, London is predicted to fair even worse.
Property ownership in Europe
Whilst we are well known in Europe for being a nation of homeowners, many European countries have a higher owner occupancy rate than us. With the UK at 63%, Romania comes top of the list with home ownership at 96% followed closely by Slovakia, Slovenia and Poland. Purchasers in Romania only have to find a deposit of 5% of the property value and there is no stamp duty to worry about. House prices are also comparatively reasonable being at around 2.5 to 3 times the average salary – a bit like the UK house-buying conditions of the 90s. With it getting more and more difficult to purchase in the UK, it looks increasingly likely that we will fall further behind our European neighbours.
Renting property in the UK
It is awfully difficult for those renting to raise a deposit to buy. With purchase deposits in the UK at around 15% of the property value for a decent mortgage deal, raising this becomes increasingly difficult what with increasingly crippling rental rates. In London, the average tenant spends 72% of their net salary on rent – this rises to a staggering 88% for those under 25 years old. How do you raise a deposit when so much of your income goes on rent? This is a real problem and has led to many would-be first-time buyers staying at home with their parents for longer.
Renting property in Europe
One European country famed for its love of renting is Germany. Only 52% of Germans own property. So why do so many Germans choose to rent a property over purchasing one? The reason is that the average German only spends 25% of their net income on rent compared to the UK’s figure of 72%, They therefore have a much higher disposable income to spend on other things. Also, the cost of renting v buying in Germany is similar, with no clear advantage of one over the other.
There is no clear advantage of renting vs buying in most of Europe but there is a clear difference for us here I the UK where it is much more effective to buy than rent; but it’s also a case of being able to save enough money for a deposit in the first place. This is a huge challenge and has resorted to a new high street bank called Bank of Mum and Dad. Serious planning is required without this resource. Once your deposit has been found, the best strategy would be to take out a capital repayment mortgage that would come to an end when you retired. You could then spend the rest of your days living in your property rent and mortgage free with only your bills to think about. Sadly, you are likely to continue to feel robbed while you rent.