Buying and renting in the UK vs Europe
There are approximately 25 million homes in the UK, 7/10 of which are owner occupied (i.e. the person living there owns the property).
It’s a figure that’s been steadily increasing: since 1997, the number of home owners has risen by one million across the country.
However, all we ever seem to hear on the news is how house prices are continuously rising, and the increasing difficulty in getting a step on the property ladder.
Buying properties in the UK
With house prices rising by 5% every year, it’s predicted that by 2025, over 50% of the population under 40 will be renting properties owned by private landlords. In fact, research by PWC showed that by 2025, 7.2 million households will be in rented accommodation, compared to 5.4 million in 2015.
According to Nationwide Building Society, the average property in the UK today costs £200,251.
London properties – unsurprisingly – cost the most, at an average of £455,984. That equates to a price nine times the average annual salary; and is the reason why the capital has the lowest levels of owner occupied houses, at 58%.
For the UK overall, the average house price equates to six times the average wage.
The North/South divide is as clear as ever, with the same research showing how a typical home in Northern England costs less than half of one in the south.
It was also found that Wales, Scotland and Northern Ireland all offer lower cost properties than England, with average costs of £141,525, £139,911 and £123,225 respectively.
Regardless of where you’re looking to purchase a house in the UK, these continual increases make it extremely difficult for anyone looking to buy a property for the first time.
In the space of just twelve months, the Office for National Statistics (ONS) found that first time buyers paid prices 9.7% higher than average in March 2016, compared to the same month the year before.
Nowadays, the typical first time buyer is 33 years old; and will have spent five years saving for the average deposit of £24,000 (this almost doubles to £44,000 for properties in London).
Nevertheless, it seems these rising prices will stop many people from purchasing properties in the future, with costs simply becoming unaffordable. While for those born in 1970, it was predicted that 71% would become homeowners by the time they were 40, this figure drops to just 47% for everyone born in 1990.
Buying properties in Europe
Whilst many of us may believe we’re well-known in Europe for being a nation of homeowners; many countries actually have a higher owner occupancy rate than us.
Information from 2014 shows that the EU average owner occupancy rate is almost identical to the UK’s, at 70.1%. Romania came top of the list at 96.1%, followed by Slovakia, Slovenia and Poland.
What’s also interesting is the type of housing purchased in each European country. Whilst in the UK, the highest proportion of owned dwellings are semi-detached houses (60%); flats are by far the most popular in Spain (66.5%), Latvia (65.1%) and Estonia (63.8%).
When it comes to mortgage repayments, we Brits spend less of our net wage proportionately than our EU neighbours. Approximately 23% of net wages are spent on the monthly mortgage in the UK, whereas in 2014, it was found that 11.4% of EU households spent 40% or more of their equivalised disposable income on housing. You can find out more about the cost of housing - as well as the cost of living in general - with our infographic.
Renting properties in the UK
For those aiming to get on the first rung of the property ladder, we know that once we’ve saved the deposit, mortgage repayments are a fairly low proportion of our salary.
The difficulty lies in actually obtaining the deposit – especially when we’re faced with crippling rental rates. The average tenant spends 47% of their net salary on rent (increasing to 72% in London), and this rises to a staggering 88% for 16-24 year olds.
The above scenario is all too real for much of the UK rental population.
This has led to an increase in many would-be first time buyers moving back in with their parents. In 2015, 28% of parents with children aged 20-45 welcomed their offspring back to the family home – up 4% from 2012.
These parents are also forking out to help their children gain a step on the property ladder. Research from Halifax found that 26% of parents helped to contribute towards a deposit for their children, and 21% helped towards other costs associated with moving home.
Renting properties in Europe
So whilst mortgage repayments are fairly low in the UK compared to the rest of Europe, it probably comes as no surprise that for renting, it’s a different story. According to the National Housing Federation (NHF), the average monthly rent in Europe is £400; rising to £750 in the UK.
One European country famed for its love of renting is Germany. Bottom of the EU list for owner occupancy rates at 52.4%, the only European nation with a higher percentage of renters was Switzerland.
So why do so many Germans choose to rent a property over purchasing one? Well, the approximate 25% of net salary they spend on rent means they have a much higher disposable income to spend on other things. Also, the cost of renting and buying in Germany is so similar, that there’s no clear benefit of one over the other.
What may seem strange however, is that despite Romania and Slovakia both having higher percentages of owner occupied properties than the UK, those renting spend a smaller proportion of their wages on rent compared to our levels, at 34.7% and 13.2% respectively.
These lower rental rates mean that in Europe, renting a property is very much seen as a long term option. 43% of European renters have moved in the last five years, compared to 77% of renters in the UK.
The high costs associated with renting has meant that in the UK, many of us continue to chase the dream of owning our own property; with renting seen as a stopgap until we’ve raised enough for a deposit.
The additional costs of purchasing a property
With the average deposit in the UK totalling £24,000; years of saving prior to purchasing a house is essential.
When you first purchase a house, there are extra costs that you’ll need to account for, such as stamp duty, valuation fee and legal fees amongst others, but these are much less than the deposit.
The major attraction of buying a house is that essentially, you own it. This means that you’re responsible for all repairs. In rented properties, if the boiler broke or the microwave stopped working – provided it wasn’t the fault of the tenant – the landlord would cover the costs to get it fixed.
Sounds good, but HomeLet’s 2015 Tenant Survey found that 22% of tenants renting directly from a landlord weren’t happy with the length of time it took to sort the repairs; as were 34% renting from a letting agency.
So whilst you’ll be footing the bill, at least you can get the repairs sorted when it’s convenient for you, and you can purchase all of the appliances and furniture you want, without having to compromise with the landlord’s taste.
The additional costs of renting a property
The average monthly rental costs of £750 are high, but there are additional costs to consider when moving into a rental property.
Once you’ve found a place to live, you’ll need to pay a deposit (typically six week’s rent). If you’re renting from a letting agency, you’ll also be paying agency fees and admin charges – costs you won’t get back.
The deposit however, is refundable at the end of your tenancy – provided there aren’t costs you have to cover.
Most landlords and letting agencies are fair, but to give yourself the best possible chance of receiving your deposit back in full; ensure that both you and your landlord/letting agency go through a detailed inventory at the start of your tenancy. Make detailed notes and take pictures of any damage – however small – that may raise questions when you move out.
Throughout your tenancy, you should also report any damages as they arise (a broken appliance, for instance), so that they can be fixed. Keep a record of all correspondence you’ve sent, so that if they don’t get fixed, you can prove you have asked.
A deposit is a substantial amount of money, and it’s not worth throwing it away through being careless.
Essentially, when we compare renting and purchasing in the UK; it’s more cost effective to buy a property; but it’s a case of being able to save enough for a deposit in the first place.
In contrast, with the similarities in prices between renting and buying in Europe; there is no clear advantage of one over the other, although most countries have tended to opt to purchase their own properties too.
If you're considering visiting - or even moving! - to a new European city, don't forget to purchase your travel money! Looking for inspiration on where to visit in Europe? Then take a look at these beach destinations and alternative city breaks - you're sure to find somewhere that's perfect for you!
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Disclaimer: Remember, do not buy what you can’t afford, and think carefully before taking out a loan for any non-essential purchases.