"Whilst over 50% of renters that want to buy have said they won't be able to save enough for a deposit, there are other factors that are giving renters cause for concern"
According to a recent survey of over 1,000 renters by bridging loan broker, Finbri, as many as 83% of renters want to purchase property but over 75% believe that they won't be able to do so in 2023. Unsurprisingly given the current economic situation in the UK, the key reason renters can't get on the property ladder is the inability to save for a deposit. But the UK Renters' Report 2023 also discovered 32.37% of renters say mortgage rates are too high, 22.76% are unable to obtain a mortgage, with just 14.74% that prefer to rent.
What is preventing renters from purchasing property?
Renters are struggling. Demand for rental property is outstripping supply, and rental costs are increasing. There is an ongoing cost-of-living crisis combined with rising energy prices and a precarious economy - renters know they are less likely to own a property - certainly not in the next 12 months. Finbri's UK Renters' Report found the most common reasons:
Unable to save enough for a deposit (53.82%)
The tumultuous nature of the property market has caused unrelenting pressure on tenants, with over 53.82% of tenants stating that they are unable to save enough for a deposit. The general consensus is that the deposit is around 15-20% of the property's value and typically takes between 2 and 15 years to save - with the majority of renters being unable to save this amount due to increased costs.
Mortgage interest rates are too high (32.37%)
Nearly 1 in 3 UK renters believe that the current mortgage interest rates have become too high, making it difficult for them to purchase a property. This can be attributed in part to the Bank of England's decision to raise the base rate for the tenth consecutive month.
Following the base rate increase from 3.5% to 4% this February, Nationwide have subsequently increased their mortgage rates:
Standard Mortgage Rate (SMR) will increase from 6.49% to 6.99%
Base Mortgage Rate (BMR) will increase from 5% to 5.50%
With the UK base rate predicted to reach a peak of 4.5% in mid-2023, landlords were asked how they intend to react to the increasing rates, and their responses will cause concern for renters.
52.75% of landlords plan to raise rents further to cover the additional expenses resulting from the increasing rates, making it even harder to save for a deposit.
Unable to obtain a mortgage from a lender (22.76%)
In response to the cost of living problem, mortgage lenders are tightening their lending standards, which could make it more difficult for people to borrow as much money as they previously could. Renters have also faced difficulty obtaining a mortgage from a lender, due to a lack of available mortgage products or limited deposit.
However, despite the immediate detrimental impact of the mini-budget last September when mortgage products were pulled overnight, mortgage products have risen recently, which may come as some relief for renters looking to get on the property ladder.
Unable to afford conveyancing fees (15.26%)
Conveyancing fees include all the payments required to ensure the legal side of a purchase, this includes legal fees and disbursements. The typical conveyancing fees range from £500 - £1150 plus disbursements. Further costs are incurred if the property is leasehold instead of freehold - renters are aware and concerned with the additional costs associated with purchasing property.
Waiting for interest rates to reduce (14.74%)
The uncertainty of the property market is causing many potential first-time buyers to wait for the interest rates to reduce before deciding to purchase - when interest rates drop, depending on the type of mortgage you have, the monthly cost can decrease and become more affordable.
The Bank of England's base rate is expected to increase to 4.5% by mid-2023, and whilst there are predictions the rates will then lower, it's unclear as to when the rates will reduce and make it easier for aspiring homeowners to purchase a property.
Further reasons renters said they won't be able to purchase a property within the next year include, the inability to afford Stamp Duty tax (11.84%), unable to find a suitable property (10.26%), waiting for government-backed schemes to become available (7.76%), concerned about falling into negative equity (6.97%), property price crash is imminent (10.66%), whilst 14.74% prefer renting.
Final thoughts
Renters are concerned about energy, food, and rent increases, on top of the cost of living crisis and the UK economic outlook. The rising rates are causing landlords to increase rents, further compounding the issue for renters of being unable to save for a deposit.
However, whilst 75% of renters that have resigned to not owning in the next 12 months, there may be signs of encouragement. There has been a recent boost in the number of mortgage products available and UK inflation has slowed down slightly to dodge a recession - for now.
With 48.45% of renters seeing increased rental prices and over 27% experiencing anxiety as a result of renting, tenants will be hoping the proposed Renter's Reform Bill will improve their rights, especially fair increases in monthly rent.
Stephen Clark, from Finbri, concludes: "The UK economy and mortgage market volatility are driving up demand for rental properties. Due to the prolonged uncertainty in the market and its overall weaker position, first-time buyers are postponing entry into the market. Sales are likely to decline, but the rental market will keep expanding since lenders are having difficulty issuing mortgages and sellers are bailing out due to delays.
“Whilst over 50% of renters that want to buy have said they won't be able to save enough for a deposit, there are other factors that are giving renters cause for concern. Energy costs, rent increases, and concerns over the UK economic outlook are all contributing factors impacting renters.”
