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Private renters and savings: Are private renters ready to buy?

Posted on 17 July 2019 by Melanie Doyle, Research Director .
Tags: English Housing Survey, home ownership, housing, renting

The English Housing Survey is an annual governmental survey into homes and housing, conducted throughout the year across England. The sample of households is scientifically chosen to represent the wider English population.

Private renters make up around a fifth of all households in England – around 4.5 million households in total – and this sector is traditionally viewed as a transition into home ownership.

This is reflected in buying expectations for private renters as a whole where 58% plan to buy a home in the UK in the future. But how well do this group’s savings reflect their buying aspirations?

Savings are crucial for first-time buyers

The cost of buying a home is an important barrier, particularly the initial costs of a deposit, stamp duty, solicitors’ fees and moving. With deposits for first-time buyers averaging around £22,000, substantial savings are likely to be needed. Regular monthly mortgage payments may be less of a challenge, as these are likely to be on a par with monthly rental costs.

Savings remain the main source of funding for 80% of first-time buyers, and the proportion using savings has increased since 2005. First-time buyers are also increasingly using gifts from family and friends to help fund their deposits.

The chart below shows levels of savings among private renters in England: those who plan to buy their own home in the UK.

Levels of savings among private renters who expect to buy a home

 Blog _170719

Source: English Housing Survey, 2017-18
Base: Private renters who expect to buy, n=1,270

Given that this group of private renters expect to buy their own home, it’s surprising at first glance that only one in ten have substantial savings of £16,000 or more.

However, this ‘small’ group represents over a quarter of a million privately rented households who expect to buy and have substantial levels of savings in place to do so. These private renters may be well placed to buy a home in the short term.

This group also appears large enough to support current rates of home buying, at around 200,000 private renters per year.

What about private renters who currently have no savings?

The largest group shown in the chart - 1.4 million private renters - expect to buy but currently have no savings. Are their buying expectations any less realistic?

Clearly this group without savings would struggle to buy in the near future, but they may well recognise that; for most people, buying a home is part of a longer-term plan. Almost three quarters of private renters who plan to buy expect to wait more than two years before buying, allowing time to save for a deposit. Gifts from friends and family may help to reduce the levels of savings needed.

Policies for first-time buyers

Potential buyers may also be able to take advantage of policies that have been developed to help home buyers.

These policies tend to be tailored to helping potential, and mainly first-time, buyers to save (Help to Buy ISAs), to purchase a home with a lower deposit (Help to Buy equity loans), or to part-buy, part-rent their home (Shared Ownership). Some policies are also tailored to areas like London where house prices are considerably higher ('first dibs' for Londoners and Help to Buy). In an environment where private renters are struggling to save, largely due to the high cost of renting, this support is essential.

With little expectation of house prices falling to more attainable levels, private renters may be increasingly reliant on well-directed, evidence-based policies to help them to save and to buy.

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