Advantages of renting over buying property
Simon Munton - Mon 26 Jun, 2006
...But its not all bad news for tenants. You see, weirdly, in the future, you may be financially better off renting here in the UK. No - its true! In fact, mortgage lender Abbey says that in Wales, renters are ALREADY 27,000 better off over a typical 25 year mortgage period than buyers. In Greater London, they report that tenants are 8,188 BETTER OFF than homeowners over the same period!...
Whilst killing time in a hotel bar in Spain some years ago, I got chatting to a very nice chap from Rotterdam. I say ‘nice’ – he did admit to having one major problem with the British...
"My one major problem with the British," he began, "is your ridiculous obsession with bricks and mortar."
"The fact that you spend the best years of your lives with a financial noose around your neck is a great source of amusement to us Dutch."
"Just rent!" He said, with a wide-arm shrug. "Don’t be so hung up about owning... It’s still somewhere to live, after all... and you’re free to come and go as you choose."
After my laid-back Dutch chum laughed-off my desperately unoriginal "dead money" argument, I had to concede he had a point.
Maybe the Dutch – and while we’re at it, the Germans, French, Italians and Spanish - have got it sorted. You see, by and large, they all rent the property they live in. My German neighbour says her parents back home are horrified that she’s about to buy a place in Chiswick. Nothing to do with the West London suburb – it’s just that the idea is considered lunacy in Germany. She daren’t tell them how much it’s going to cost her.
Likewise when a previously home-owning friend of mine moved from the Midlands to Milan a couple of years back – buying was never an option out there. Incidentally, he’s back now and continues to rent in the UK. Why? He doesn’t believe in the property market here – at least not for the moment, anyway.
So where is this leading?
Well, lots been made about the fact that first-time buyers are now all but totally squeezed out of the UK housing market. Housepricecrash.co.uk reports that in just 10 years the number of first time buyers has gone from 55% of the market to just 29%. Now it seems that the middle rung of the ladder is more elusive too. Many mid-income families can no longer afford to upgrade to a bigger house in the same area.
Homeowners wishing to ‘buy-up’ the chain face a stark choice: either stay put and chuck stuff out, or move to a less desirable neighbourhood to give yourself a bit of extra elbow room. Or, I suppose, like my friend – or me for that matter – if you want to stay where you’re happiest, you can just rent. After all, as they say in Rotterdam, what’s the big deal?
Advantages of renting over buying property: High-gearing
Wholesale renting is still a weird concept to us Brits. But despite this, the UK is awash with landlords at the minute.Now traditionally, these were wealthy people with large property portfolios.
Nowadays everyone's doing it. Easy cash has made it a cinch for folk like you and I to play ‘Monopoly’ for real.
Well, I say "like you and I" – that only really applies if you bought a place before the first half of
1997 – or you’re fortunate enough to have inherited a pile since then.
You can argue that we only have ourselves to blame for this huge, oxygen-starving fixation with real estate.
Together with high house price inflation and low interest rates, there has also been a glut of TV programmes imploring Joe and Judy Bloggs to release equity, finance themselves to the hilt and exploit high gearing to buy a second or even third place.
Thus becoming ‘bona fide’ property developers or buy- to-letters.
Good for them. But for those of us without Joe ‘n’
Judy’s fat development budget, getting a foot on the property ladder – bottom or middle rung - is edging ever closer to the realms of fantasy.
Advantages of renting over buying property: Dead money?
But it’s not all bad news for tenants. You see, weirdly, in the future, you may be financially better off renting here in the UK. No - it’s true! In fact, mortgage lender Abbey says that in Wales, renters are ALREADY £27,000 better off over a typical 25 year mortgage period than buyers. In Greater London, they report that tenants are £8,188 BETTER OFF than homeowners over the same period!Abbey produces an annual "Rent vs Buy" report. And this year’s edition indicates that, by and large, the gap between buying and renting has been narrowing. Aside from Greater London and Wales, you’re also better off renting in East Anglia (£6,728 saving), The North (£13,727) and The South West (£21,000)
Gets you thinking, doesn’t it? Especially if something like your boiler explodes. You can uncork a nice Chianti and kick back while your landlord does all the scrambling around – and foots the bill!
Advantages of renting over buying property: An economic trend
In terms of a trend spotted – aside from potentially being able to save yourself a fat wedge in mortgage fees, estate agents fees, solicitors’ fees, renovation costs etc in the future - I foresee a knock-on socio- economic trend...and not necessarily a healthy one.First, middle income families who want to upgrade will move even further away from the cities. Traditionally middle-class estates will be bought up by high income landlords and ravenous portfolio-builders. These mid-earners who are adamant they want to ‘buy- up’ will be even further away from work than they are now – so they’ll spend more time commuting – and less time with their families...
And that will leave our cities divided into three camps: low-income housing association tenants; young single professional renters who don’t need a big home but value the proximity to work and social life, and high income, long-term residents who will continue to occupy all of the best neighbourhoods.
I do think the ground is starting to shift though. I’m sure more and more people will eschew the stressful pursuit of property purchasing and settle for a life of renting – like our continental cousins.
It’s way less hassle. And if it really does become more financially viable over a 25 year period, maybe a few more of us will start to see past this "British obsession"...
Regards,
Simon Munton
for The Daily Reckoning
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