Millennials Rent to Retirement in the Post-Ownership Era

Would You Live on a Rent Until you Retire?

The Tendency Which Seems to be Spreading All Around the Globe

The chances are that you’ve already heard a little something about the post-ownership era, and if you’re part of the Generation Y (better known as the Millennials) probably you’re not only informed about this tendency but living it as well.

From the homes we live in to the cars we drive, the sharing economy is dominating more and more corners of our lives. We’re all basically living in a post-ownership society and there’s nothing we can do about it. The truth is that Brits are feeling empowered to own less and tend to accelerate the established UK’s sharing culture.

The term rent to retirement has become so common and widely useable that in the US there’s even a site for rental properties with that name. According to the studies of the market and the sociological surveys, up to a third of the UK millennials face renting their entire life and will never own a home on their own.

Rent to Retirement

Britain’s housing problems seemed to have developed into a full-blown crisis and young people are the ones bearing the brunt. And this simple fact predicts an explosion in the housing benefits bill, once the millennial generation reaches retirement.

The report prepared from Resolution Foundation adds to a growing chorus of demands for rent stabilisation. It calls for a radical overhaul of the private rented sector, proposing a three-year cap on rent increases, which would not be allowed to rise by more than the consumer price index (currently amount 2.5%).

Although the ones born between the early 80s and early 2000s have a higher number of college graduates than any other generation (especially the two previous one – the Gen X and the Baby Boomers), they’re less likely to own a home.

As long as we work mainly with young and ambitious people, we’re quite into this trend and we’re feeling ready and somehow obligated to guide you through living the life as a renter to retirement.

Nowadays Generations are much less likely to Own a Home

When the numbers speak, the generations remain silent

In the US alone, millennials spend nearly $100,000 on rent before they turn 30 or as much as 45% of their income on rent between the ages of 22 and 30.

Although that kind of detailed survey isn’t made for the territory of the UK, the situation on the island isn’t any different.

The tendency suggests that third of millennials in Great Britain will still be renting at pension age, which will roughly cost the taxpayer about £16 billion a year. According to another report, four four out of ten 30-year-olds are currently renting with no intention of buying a property on their own.

For comparison, this is four times more than the proportion of people renting at the same age, born between 1946 and 1965.

There’s more - a record figure of 1.8 million families have rented a private property even after they had children. This is roughly 3 times more than the families, created just a decade ago.

Over the next 15 years, the number of people in the UK who will rent their home from a private landlord is expected to reach more than nine million and they will be paying an average of 42% of their income in lease alone.

Millennials spend nearly $100,000 on rent

The proportion of pensioners' income taken up by rent is likely to accelerate in this period as well. Currently, retirees in the capital spend 66% of their income on rent, but this figure tends to rise and might reach the unbearable 80% by 2032.

At the moment, 32% of the average pensioner household's monthly income of £2,374 is spent on rent. By 2032 the average income will have risen to £3,706 - but rents will have risen faster though, accounting for 42% of the general income.

The projections suggest that renting in London may become untenable for everybody except for the ones born with a silver spoon in their mouth.

Give me a reason to rent here

The reasons behind living life on rent may vary for everyone personally but still, there are some which are quite common and seem to be basal.

The price tag is far from being the only logical explanation on the table (since the cost of renting versus buying a home is about the same, especially in the big buzzing cities).

Ahere’s also the lack of desire of the millennials to be responsible for their own place.

The housing shortage is likely to have a significant impact on society for decades and it affects the real estate market quite strongly today as well. The majority of young people are concentrated in big cities and this leads not only to much higher prices of the properties within them but to overpopulation as well. The neighbourhoods, especially the good ones, seem to gasp because of the constant need of new tenants waiting on the line to rent a decent home in their borders. So to buy one is simply not a possible option.

Housing Shortage is Happening Already

Bigger cities mean bigger paychecks and bigger price tags

People who have chosen to live in high-cost cities tend to earn more (and that’s among the most common reasons to stay there as well) but they also devote a greater amount of that income to housing and the pricier amenities.

And since the mortgage doesn’t sound appealing for the youngsters, who tend to want it all and have it now, renting in the big city is the most probable outcome. Plus the up-front or the down payment is a tough one for many young hypothetical homebuyers.

A mortgage seems to be a forbidden word for the youngsters

It’s harder and more inconvenient to get attached

Living in the 21st century is overwhelming in many ways. Everything evolves so quickly and rapidly that it becomes harder and harder to keep up with the new trends and adapt to the technologies of the future, which means that our everyday life is about to change (hopefully for good).

We’re the generation who got used to consuming everything fast – the food, the information, the relationships. To commit and attach to something and someone is no longer the case for the millennials.

wning a place to live may mean that you have your own little somewhere to call home but this will anchor you to a specific place and takes away all the flexibility you’ve already gotten used to as well.

Since we have so many different opportunities to travel all around the globe and the ability to change our workplaces, surroundings and our whole environment in a blink of an eye, it’s quite possible to question ourselves whether the benefits of ownership are truly worth the bother in such a reality.

Are the Benefits of the Homeownership worth it?

Renting may present fewer hassles and commitments

Even if it costs a huge chunk of every millennial paycheck, renting has its pros. It’s good to know that there’s always someone to call when something goes wrong, all you have to do is to pick up the phone and say: Landlord, There’s Something Wrong With My… to get things done and spare yourself all the hassle.

It’s certainly a huge relief to be able to pass any unpleasant labour and expense to your landlord or building management. That’s why a lot of the millennial renters have said that they prefer to rent for this exact reason - as a renter, you don’t need to worry about any hard to handle maintenance issues.

Among the barriers to homeownership, we can put in delayed marriage and student debts as well. The list can probably go on and on and on but we’re pretty sure you’ve got the main picture.

As a renter you don't have to worry about maintenance issues

What does all this mean for you?

We know that if you’re a millennial paying rent every month, you don’t need to commit a study to understand and sense the effects on your bank account.

But there’s still a thing or two about the high rent costs that you should have in mind for the huge impact they may have on a young person’s life.

It’s simple - the more income taken up for rent, the less money left over for saving, investing and paying off debts. That can and will lead to higher interest costs on your credit cards and student loans, and a longer timeline for retirement. And as long as we’re considered to be a generation ill-prepared for retirement, there comes the logical question:

We’re considered to be a generation ill-prepared for retirement

How much pension you'll need to keep on renting in retirement?

Rising rents have zero regards for age or generation. The millennials are paying more in rent over the course of their lifetimes than their generational forebears and this tendency seems to keep on spreading.

That’s why the rise in the number of the intergenerational households remains stable as well. This trend began during the Great Recession (or the most significant downturn since the Great Depression) and led to a growing amount of adults, who moved back in with their parents to make ends meet, and it doesn’t seem to be slowing down.

That cycle is bound to spread into the next generation, as millennials struggle to reach financial stability and secure their children's future. So basically, everyone seems to be affected by the increasing rent cost and for now, the Generation Y are certainly feeling the brunt of it.

The government in the UK has taken this issue seriously into account and even provides advice to people who are already retired and still living in rental properties.

And since this tendency is definitely a thing, let us use the opportunity to dig further into it.

The Number of Intergenerational Households is Increasing

Which are the factors that concern your pension?

First things first – Remember that the pension will probably be the only stable income that you’ll have when you retire. Your retirement may last from 20 to 30 years, so you’ll have to live for quite a long time on your pension alone.

Most people get a State Pension from the government, which should cover their basic needs. Still, if you want to ensure that you’ll have a decent standard of living in your golden years, it's strongly advisable to save some extra money in a pension fund.

Saving for your pension is a long term commitment (and the earlier you start the better), so try to work out your budget to make sure you can afford a regular payment into your pension pot no matter how small the monthly amount is.

When trying to foresee how much pension you'll need for your retirement, think about:

  • The cost of your home. Your mortgage is often one of your biggest expenses, so in the best possible scenario you should pay it off before you retire. If you rent your home, you'll still have to pay rent when you retire, so don’t leave that out of your monthly expenses.
  • Your fuel bills. Gas and electric bills may be higher if you're staying at home more, so make sure to foresee a bit larger budget and don’t be ashamed to ask if there's any help you can get, such as a Winter Fuel Payment or energy efficiency measures for your home..
  • Paying your debts on time. Try to plan for any borrowing to be paid off before you retire.
  • Lower your expenses. Transport fees, lunch breaks, new business outfits – you won’t need any of this when you retire, so some expenses may disappear at once.
  • The lifestyle you want. If you’ve waited your whole life to leave on that Euro trip or dream holiday abroad or to start your own art collection, think about this in advance and try to prioritise your needs and expenses.
  • Happiness is only real when shared, so try to foresee your partner's expenses and expectations, when you’re about to enjoy your retirement.
  • Is there any other income to support your needs? Any savings and investments are finally ready to pay off.
  • Remember to review your pension plan. Things are changing quite fast nowadays so pay close attention to the government’s benefits system and the changes that are bound to happen. The chances are that the situation won’t stay the same during your whole working life.
  • Consider your State Pension age. This is the age at which you'll be able to claim State Pension. You can check your State Pension age here.
  • Take into account the tax relief at the rate you currently pay tax, you’ll get once you’ve retired.
  • Check out the types of pension and know your place and benefits.
  • Inform about the pension scams and don’t get into their trap.
  • Remember that even if you’re struggling to cover your rent after retirement, you’re far from doomed since you could claim Housing Benefit to help with your housing costs.

    How much Pension you'll need for your Retirement?

What can you do to minimize the costs?

The chances are that you won’t be able to find cheaper housing, but at least you can take a few steps to minimize the costs of living in the city and set yourself up for a brighter future.

  • Let’s start with an examination of your spending. We know how important the entertainment may be and somehow essential, since you’re not simply a robot fated to work without a proper rest, but the first thing you should do is to take an honest look at your budget and see what you might be able to cut out. Don’t spend more than you can afford on luxuries and try to live on a budget.
  • Consider housing alternatives. Change the neighbourhood even if this means to travel longer each morning, consider shared housing and don’t rush into living alone – try to live with a roommate or two and finally consider the idea of moving back with your parents for a while. BBC News has set up a UK Facebook group dedicated to affordable living and you can join in it here.
  • Develop a plan for paying off debt. Try to create a repayment plan and spare a set amount of money each month to cover your debts.
  • Save in smaller ways. Saving and investing doesn’t mean spending a huge amount of money. Start small and see how it goes from there. You can give the micro-investing a try. A spare £1 may be the thing to make things just right for you. While micro-investing is still in its infancy in the UK, it is already an established phenomenon in the US and Australia, used by numerous young people to keep up with their monthly expenses. The average Moneybox user, for example, invests about £500 a year, which is quite affordable even for the tightest budget.

    Living on a Budget

The 10 things you should consider before investing in a property

If you want to be an exception from the rule, we’ve gathered for you some professional estate agents tips. So here they are:

  • Have a clear investment strategy. This will certainly pay back in the long run.
  • Be aware of the tax differences between buying an investment property to sell immediately and buying to rent and the profit that those options will bring you.
  • If you’re a first-time buyer, don’t overspend and limit the price of the property to £300,000 or less.
  • Be aware that you may have to pay an extra 3% stamp duty if it’s your second owned property.
  • Arrange the space in the best possible way. For example, if you buy a one-bed flat with a separate kitchen, make the kitchen in the lounge and turn the other kitchen into a second bedroom. This way you will add at least 20 per cent to the property value.
  • It may be really hard to make leasehold buy-to-let profitable with all the additional costs like service charges, ground rent etc. so stick to freehold instead.
  • Try to avoid the student accommodation and the house in multiple occupancies (HMOs). They tend to be much more time-consuming to manage and harder to get a mortgage on.
  • Consider investing in the commercial property market. The tax benefits tied to interest and depreciation have historically strong returns with average annual return: 9.5% over the course of 20 years.
  • Short-term lets may deliver higher returns through flexible rental solutions. Plus they don’t require any change in planning, unlike traditional buy-to-let properties.
  • Try to find deals that are below market value. Look for properties that are in an area to benefit from future regeneration or where the seller needs to move quickly.

    The 10 things you should consider before Investing in a Property

Pros and cons of buying a property

Before we list the benefits and the issues of purchasing a household, we want to remind you that no matter what you’ve chosen, we’re just a phone call away if you ever need a professional cleaning service and unlike the real estate market, we offer a 200% guarantee that at the end of the day you’ll be beyond satisfied with our services.

Pros of the Purchase:

  • You have full control over your environment.
  • You would never again be afraid of eviction or rise of your monthly rent or wondering what to do if your landlord decides to sell the property you’ve moved your whole life within.
  • You can make improvements and additions in order to create your dream home.
  • The money you’ve invested will likely come back to you.
  • If you’re under the terms of a fixed-rate loan, your monthly mortgage payment is constant and remains stable.

Cons of the Purchase:

  • It’s expensive to buy and hard to sell a property.
  • You’re responsible for all the repairs and property taxes.
  • The liability is yours if anyone is injured on the property or whatever else goes wrong.
  • It’s harder to move out, since you can’t just pack your bags and leave.
  • According to Nobel Prize-winning economist Robert Shiller, homeownership is no longer considered to be a great investment since the selling price probably won't rise with more than a few per cent during your lifetime.
  • aintenance work means less free time and you are the one who has to pay for expensive repairs.
  • You can live on rent in the area, which otherwise you simply couldn’t afford, because of the high property’s prices.

    Pros and cons of Buying a property

*All the data cited in this article is taken from Development Economics and Resolution Foundation.

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