For tenants, a lot of reports have claimed you’ve had a tough ride through the credit crunch.
And for those who are receiving benefits or renting social housing, you have had a tough time. With the introduction of the aptly named ‘bedroom tax’ and the ‘well’ documented cuts in benefits, plus rental increases which are inflation +1%, rent rises in the social sector have risen faster than the private sector.
While the cost of living rises have been in excess of inflation, social renters have suffered twice. Higher bills, less wages, lower benefits and inflationary rises on social rents, plus being hit with the bedroom tax is a tough mix.
On the other hand, for those renting in the private sector, there are benefits, especially if you had planned on buying. Many people who bought at the height of the 2007 market are in negative equity thanks to the crash, so those that rented privately instead, have saved losing themselves potentially tens of thousands of pounds.
And for those private renters who rented from 2009, rents were pretty low and many landlords, partly thanks to the low interest rates, have kept rents the same, so unlike social renters, few have seen inflation busting hikes.
But 2014 is a little different. In some areas, such as Scotland, Northern Ireland, parts of Wales and England, investors continue to pile into buy to let, meaning demand and supply remain well matched. In these areas, rents will remain pretty stable and if there are increases, we are talking a few percent.
Hopefully with an economic recovery on the way, wages will start to rise and this will compensate for any increases landlords need to push through to cover their own cost of living rises.
For those not sure whether to rent or buy, typically, there is as much dead money in renting as there is in buying and paying mortgage interest based on your annual rental income being 5% or less of the property’s value.
If your rental income is £5,000 and the property would cost £100,000 to buy, a 95% mortgage to buy this property would cost as much to repay in mortgage interest (dead money) as it would to rent.
This doesn’t include the costs of finding a minimum deposit of £5,000 (ie 5%) and the costs of buying which would be around £2,000 for a £100,000 property.
If property prices grow at more than 3% a year though, you would be gaining money over time from the extra equity generated, so with price rise forecasts in some areas of 5-10%, this means you may have to pay a little bit more for a property should you buy in 2015 or beyond than if you buy now.
For more information on whether buying or renting takes up the most dead money, read my article Renting vs Buying, it’s not as much dead money as you think!
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