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Do you 'prefer' renting?
Added: (Tue Oct 04 2005)
This is what the excellent Property Investment News says:
Young adults prefer renting
Most potential young buyers prefer renting a property within a in fashionable area, close to their social circles rather than commit themselves to a mortgage, according to new research by General Motors Acceptance Corporation - Residential Funding Corporation (GMAC-RFC)
This has contributed in the fall of first time buyers in the housing market, which has dropped by 50% to just 28%.
In fact the research reveals that among one in ten young people does not intend to buy a property for at least another eight to ten years.
Seven in ten (68%) say they prefer to rent because it allows them to live close to their friends. A further two thirds (61 per cent) say renting allows them to live in a better area than they could afford to buy in.
This is what I think:
Yes, a lot of young people prefer to rent in an area because they can't afford to buy in that same area. This doesn't tell us that people prefer renting though, it tells us that the area they (we!) want to live in is more important to them than whether or not we own the property. These are 2 different things!
Additionally, it is more 'affordable' to rent in a desirable area not necessarily because rents are lower than mortgages, but because mortgages are means-tested (4.5 x salary) but rents aren't. A landlord doesn't ask you if you can afford to pay the rent, or to see your last 3 payslips to prove your income, so you just sign up to pay the rent. This may be twice as much as you can get on a mortgage (I've been there before!), but the choice of 'what you can afford' is up to you.
Banks are keen on salary multiples for mortgages not to protect you from your own overspending, but to limit their likelihood of repossessing the property. When a bank repossesses, they run a huge risk that they're not going to get all their money back, so that's why they want to make sure you can afford the mortgage.
Of course the area should be more important to a person than whether or not they own their home. Owning somewhere and being miserable is just silly. Added to that, the chances are that if it's not an area you want to live in, then it's not an area other people want to live in either - which can make selling the property on difficult.
The answer? Well, Joint Equity of course! (you knew I'd say that?!)
With Joint Equity you can buy into an area that you might not normally be able to afford, and pick a house that suits you. Look at the information on our website for full details.