Saturday 16 June 2012

How to deal with Rental Crisis

A report from Halifax stated that in most parts of UK, people are preferring to buy a house on mortgage rather than renting.  The simple reason being, interest rate for mortgage loan is much lesser than the monthly rate of rent.

The reason of this unusual trend is based on the infrequent yet fast growth of the mortgage market in UK.  The banks in UK are providing mortgage finance at the lowest interest rate. However, there are reports that sate about the changing of this trend soon, where the rate of rent would decrease and lending rates for mortgage loans will increase.  To support that, a report from "The Resolution Foundation's Essential Guide to Squeezed Britain" stated that despite of the fact that mortgage rates are much lower than the rate of rent, still, the monthly mortgage payment consumes more than 25% of monthly incomes of quarter of UK's middle and lower-middle class families.

The solution to this ever increasing rent crisis is the proposed policy of rent control. The real problem faced by the renting market in UK is that the there is a lack of supply , so proposing a rent control would only lead to a further lack in supply.  Hence, there needs to be some other options to deal with the problem.

One of the suggested solutions lies in by making investments in purpose built rental accommodations by pension funds and insurance companies.  This would help meet the needs of ordinary people of UK.  But investors won't invest in rental accommodations if they rental caps are proposed.

That aside, the other solution lies in public –private partnership in terms of investment. This will help bring new rental schemes.

These are some of the possible solutions to deal with the UK rent crisis, in absence of the option of "rent controls".  Since rent controls will have a negative effect on supply, it would be wise if not implemented, and since supply of homes cannot be increased that quickly, the stated solutions, at present are feasible way to deal with the problem.

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