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Reasons to rent a house instead of buying

Hermit crabs rent their homes. Sort of.

The following guest post on the reasons to rent a house instead of buying is from Graeme Pietersz, the man behind Moneyterms.

That it’s better to buy a house rather than rent is deeply ingrained in the British psyche. But the argument as to whether it is better to rent a house or buy is far from one-sided.

The core of the argument against renting is that rent is wasted money that you could instead save and invest in a house.

The flaw in this argument is that your entire mortgage payment is not an investment.

A mortgage payment is two payments combined:

  • One is the repayment of the amount you borrowed: this is an investment.

If paying rent to your landlord is a waste, then so is paying interest.

Rent a house or buy? The true cost comparison

You need to compare the cost of rent to the cost of paying mortgage interest. You cannot just compare rental yields to mortgage interest rates. You need to look at where both are likely to go over the lifetime of the mortgage.

For future interest rates (beyond any period for which mortgage rates are fixed) you look at a yield curve and add the spread over it that you expect to pay.

The amount you need to add is obvious for tracker mortgages, but the principle is the same for any variable rate because banks approximately follow market rates.

The Bank of England provides some nice graphs for UK rates. Similar data is available in other countries.

Model behaviour

The bad news for buyers is that it looks like we can expect yields to go up. Your mortgage payments will probably be a lot higher in five years.

To forecast future rents, the safest assumption is that they will, like house prices, roughly follow income growth over the long term.

By now you may be feeling that you are being asked to do a lot of financial modeling to decide whether to rent a house or buy. Sorry, but this is an important decision that does not have an obvious answer. It demands at least as much analysis as buying a share.

And we have not finished yet! There are more costs to be taken into account – and we have not even talked about risk.

Other costs of owning a house

Mortgage interest is not the only cost of owning a house:

  • If you own a house, you have to maintain, insure, and furnish it. Doing this costs you not only money, but time as well.
  • You need to take care to ensure that you maintain valid insurance (I know people who have happily paid for policies they did not realise were not valid).
  • You have to find plumbers and builders when needed — and pay them.
  • You have to replace old furniture, even if it has only suffered ‘fair wear and tear’.

So you need to add an estimate for all this to the cost of owning a house, and compare that number to your rent. Buying a house is probably looking a lot less attractive by now.

It looks worse when you consider the risks.

The risks of buying a house

The most obvious risk is that house prices will fall. In the long term, this risk is ameliorated by economic growth, as house prices have had a fairly stable long term correlation with incomes. The question is whether you have the will and means to last through crashes.

Also, the risks of owning a property are not just the risks to the property market in general. There are risks specific to the area you buy your house in, and to the particular property itself.

House prices do not follow the same trends all over a country. There can be huge divergences between regions. In addition, there are risks attached to your local area. It may become more or less desirable as an address.

Local facilities (schools, transport, shops) may improve or deteriorate. Changes to rivers or flood defences may make your house prone to flooding. Similar risks exist in areas vulnerable to erosion.

We touched on one of the risks peculiar to a particular property: the cost of repairs. There are a whole range of risks that can leave you badly out of pocket, from dry rot to fire. Some will be covered by your insurance, some will not be covered at all, and a good many will be inadequately covered. Regardless of who pays, it still costs you time and worry.

The price risk is far worse than similar volatility in any other investment, because most people borrow to buy a house — very few borrow to buy shares. Buying a house with a mortgage is therefore a massive margin trade

Buying a house also ties you down. If you rent a house and you are offered a job in another city, or even another country, you can be there in a few weeks. It may cost you a few months rent, but it is quick and easy, and the cost is predictable.

So, rent a house or buy?

There are times when it is obvious that buying a house is a good decision, often in the wake of a crash.

When house prices are low enough that you can pay the mortgage and also other costs with the equivalent in rent, you can’t really lose. Such high rental yields are a strong sign that prices are too low.

Most of the time it is much less clear that you are likely to benefit financially.

If house prices rise rapidly it may turn out to be a mistake to rent a house – but so would buying if they fall or stagnate. So why not keep your options open and your expenses predictable?

Note: I have updated this post from the archives because the core reasons to rent a house versus buying haven’t changed, even as various parameters have arguably become more stretched. Be aware that some of the older reader comments might now be dated, however. On the other hand, that does provide interesting context to this timeless back-and-forth!

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{ 55 comments… add one }
  • 1 Paul Claireaux March 31, 2011, 1:12 pm

    Hi there.
    You invite comment on whether better to buy or rent.
    My vote is to rent – which i’ve been doing for 7 years now (initially forced through divorce which meant i had no funds to buy !) but then a calculated decision from around 2005 when i felt the UK market had topped out.
    Are you able to add voting machines to you site ?

  • 2 Ian March 31, 2011, 5:58 pm

    I agree renting makes much more sense. £300k could produce you an income that would cover your rent etc, but you won’t get that from a house. Adding in interest I really can’t get my head round thus obsession with getting on the property ladder

  • 3 George March 31, 2011, 6:32 pm

    I’m an American, so reading this article makes me think most of UK rentals are furnished, unlike in the USA? Is that true?

  • 4 The Investor March 31, 2011, 8:15 pm

    @George – We get both. I’d say furnished is more common towards the bottom end of the renting scale, and the furnishings look it, too! (As a generalization).

    If people are renting houses, say, they tend to go for unfurnished, at least London professional types do.

  • 5 Michael March 31, 2011, 10:39 pm

    This is a good article, but I’m still not convinced that renting is better than buying.

    Obviously, this is a money-centric website, and discussions are made in that light, but the key things about buying, for me at least are:

    1/ If you are looking to buy a home rather than an investment, then buying will work out to be significantly cheaper in the long run.

    2/ What do you do when you reach your pension? A paltry state pension won’t cover increasing rent rises, and not having to worry about a mortgage which has been long paid off is a great thing to aim for.

    Unless I’m missing something?

  • 6 Charles April 1, 2011, 1:53 am

    Its really a numbers game. i think the article hits the nail on the head.
    Buying a home is what we are brain washed into believing is the best option, but if you consider current pricing means a 3 bed nice London house sets you back say £400k The interest even at a measly 5% is £20k pa plus the additional costs as mentioned above say another £2k pa.

    You would be able to rent this house for say £1600pm and be free the capital increase if prices go up any further you wont get but if prices fall you wont be a loser! How much higher can they go considering the economic fragility of the UK and that wages are unlikely to rise any time fast.

    Suggest wait for the Great House Price Crash and go for it then.

  • 7 Alan April 1, 2011, 7:47 am

    I agree with Michael. I am not convinced either that it is better to rent. Both of his points are very valid, especially the first point: I have never looked at a house as an investment which will generate income, although, if things go right, it can be that. A house, primarily, is somewhere you live and raise your family.

    Many years ago, when I used to live in rented houses (late 1990s), there were two instances in 18 months when the land-lords of the houses I was living in decided to put the houses on the market and we had to pack our bags at a short notice (which was annoying).

    In certain parts of the UK, this is an opportunity to buy a house provided you are going to live there for many years and of course you can afford it.

  • 8 Deb April 1, 2011, 12:40 pm

    Renting only works out long term if rental inflation stays below mortgage interest rate inflation. That is because buying fixes your price, and even if you didn’t pay down the capital borrowed, you would pay the prevailing interest rates.

    Rental costs of course go up with salary inflation, so in 20 years you could easily be paying double the rent that you do today (that equates to c3% inflation per year). Your mortgage at that point would depend upon the interest rate at that time. (Assuming savings when renting cancels out capital repayments made from the mortgage).

    And whilst interest rates may have peaks and troughs, there is not a pattern of long term inflation – unlike salaries and rental costs.

    So ….. whilst I am a renter now (taking advantage of the falling market) longer term I would always buy….

  • 9 The Investor April 1, 2011, 5:27 pm

    @Deb – Yes, I’m inclined to agree. The time just hasn’t seemed right in London for years.

  • 10 ermine April 1, 2011, 5:32 pm

    > looked at a house as an investment which will generate income, although, if things go right, it can be that

    it isn’t, well, not if you live in it. But after you have discharged your mortgage, it saves you needing to find the income to cover your rent. I am mortgage-free, and my personal finances improved stupendously once I paid it off. Part of that was the difference between overpaying to zero-paying, but most of it was eliminating housing costs from my life entirely (barring the approx 1-2% of the house value you should put to maintenance or servicing).

    However, Monevator himself is an example of the alternative route – save up the money so you could buy a house, but use the income from that investment to pay your rent. That will carry on after you have retired, plus you don’t get to pay three times over for your house because of the interest on the mortgage.

    Some people pay just the interest – now that is a mug’s game unless you’re only doing it temporarily, as you’re effectively renting the house from the mortgage company, plus you get to fix the boiler when it goes down rather than the landlord 🙁

  • 11 Salis Grano April 1, 2011, 8:23 pm

    Clearly, there are advantages to renting and disadvantages to buying, and timing can affect things dramatically. It seems to me, however, that in the long term, you would need to be a very good investor to handle renting in retirement.

    Our house would rent now for around ten times what we pay on the mortgage. Hammering way at property costs is one of the most effective anti-inflationary strategies open to most of us.

  • 12 The Investor April 1, 2011, 8:33 pm

    I still think for most people it will be better to buy. It’s very efficient to be your own landlord — you can take home the profit margin, for starters.

    My issue is valuation. I don’t think buying is best ‘at any cost’ as the Kirsty Alsopps of this world would have it. And I’m the kind of rootless commitmentless person for whom roaming the world with 1 suitcase and an enormous share portfolio would feel like an achievement. Most people I think would feel hollow and disenfranchised.

    We’ll see!

  • 13 Thomas Jones April 1, 2011, 9:58 pm

    A big problem with renting in the UK is the security of tenure. Assured Shorthold Tenancies are not good for long-term renters. It’s too easy for a landlord to sell up and leave the tenant with a month’s notice to find a new home.

    Some of our European neighbours have far more security e.g. France.

    This is something that needs to develop in the UK if the rental market is to provide suitable accommodation for long-term renters.

  • 14 Ben April 1, 2011, 11:30 pm

    I think all this chat is a thin veil for the opportunity of a lifetime missed in the late nineties early naughties to buy a property. If you missed it and you were in a position to buy you screwed up massively. End of story. That’s the way it goes with investments. I have a feeling that if you have the capital and the balls there is a killing to be made in Ireland right now.

  • 15 The Investor April 2, 2011, 12:55 pm

    @Ben – In my case there’s something in that, but I long ago admitted as much. Price anchoring is a dangerous psychological hurdle to get over.

    That said, there’s a difference between stick prices, and prices versus other ratios like rents and salaries. On those metrics, London property still looks very expensive.

    But your point is a good one: I keep reading US bloggers and commentators saying they wouldn’t touch US property, for instance, yet to me prices now seem reasonable. Not as good as 1999, but far better than the mid-noughties.

    That may be the case in some parts of the UK soon, too, though not the SE.

  • 16 The Investor April 2, 2011, 12:56 pm

    @Thomas Jones – Agreed. In light of how more restrictive tenure terms crippled the UK rented sector a few decades ago though, it’s clearly a difficult balance to get right.

  • 17 Paul April 2, 2011, 8:06 pm

    There are reasons to buy a primary residence….but as an investment there are some serious shortcomings. Points rarely raised are the inflexibility and illiquidity of an “investment” in housing. It is also an extremely concentrated investment…rather like having a one share portfolio (without the liquidity). As one sage put it, you can’t just sell off the kitchen if you need a bit of cash. Selling in a falling market is is often near impossible as buying interest dries up. Even in good times it is a lengthy and costly process.

  • 18 David April 3, 2011, 6:05 am

    It really depends on your circumstances.

    I read on a bulletin board recently about someone who has bought an ex-council flat five years ago in London for 180k and has just put it on the market for 230k. If she gets anything near the asking price that is a cracking return. It’s hard to save 50k.

    Over the same time frame I rented for five years in the UK in Bristol. I thought house prices were going to fall. I end it worked out well for me. My flat was bought for 185k by my landlords and the few that have been sold since 2008, turnover fell through the floor in my block 10+ a year to 2, have gone for about 10k under previous buy price according to land registry figures.

    I got a job offer in Sydney. Packed my bags, gave one months notice and was off. If I’d been an owner I’d probably have lost 10k+ in a sale if I could have even sold it all. A similar flat has been on the market for the past six months.

    So renting has worked for me and I love the flexibility. I would have made the same choice had I lived in London though and it looks like I would have missed out on big, as in live on a beach for a couple of years big, proceeds.

    I suppose I’m a no commitments, independent, world travelling guy so renting is a good fit for me whereas if you are settled in one place then buying does make sense. The gearing is great as long as you are willing to stay in the same place and can ride out any short term negative equity.

    As it stands I’ll probably continue to rent. My stock portfolio is coming up on the price of an outright flat purchase. Ok a very, small cheap flat but I could get one.

  • 19 Claire April 3, 2011, 4:09 pm

    From experience permatravel or leading the itinerant lifestyle is hardly non committal. When you choose that sort of life you may not have roots but you still have financial committments, travel or an itinerant lifestyle is far from cheap. It costs something to be anywhere. If you want to lead this lifestyle with a degree of comfort it is often far more expensive than buying a residence.

  • 20 Paul April 4, 2011, 9:45 am

    Dave wrote

    “I read on a bulletin board recently about someone who has bought an ex-council flat five years ago in London for 180k and has just put it on the market for 230k. If she gets anything near the asking price that is a cracking return. It’s hard to save 50k.”

    50k sounds good but just analyse it………the annual rate of return is just 5% and that is nominal. Take off 2% pa for inflation and that leaves 3% pa. Take off buying and selling costs etc and it does not look so special. Of course if there was plenty of leverage it may me a lot better than that.

    I bought a buy-to-let just before a previous boom and sold just after the peak. On first sight it looked a great investment. However when I analysed it after the event with all costs included it was a reasonable, not an outstanding, investment….and that was after getting the buying and selling timing pretty well perfect.

  • 21 Johan Hattingh October 12, 2011, 1:36 am

    When to Buy :

    When ( a )morgage interest paid weekly + interest you could have earned on deposit + insurrance on house +rates + upkeep cost of property = (b) RENTAL per week + Growth value on property per week .

    Subject to showing positive growth on property value :

    ie: Your growth per week on the property + (b) Rental , must be greater than ( a) .

    If not you are loosing money.

  • 22 Michael November 29, 2011, 8:42 pm

    If you live in social housing like i do renting is far and away the best deal.

    My rent never goes up by much from one year to the next and its much cheaper than the private sector equivalent.

    I have a home for life here if i want and as has been touched on, i dont have to find a penny for any structural repairs.

    They tell me they dont have the same obcession with home ownership on the Continent as people do in the UK.

    With the housing market chronically under-supplied anyway, house prices are ridiculous and way out of range for so many people especially the millions on low incomes.

  • 23 James March 3, 2012, 8:37 pm

    I’m coming to the end of my first “5 year fixed term” on my mortgage.

    I bought a property for 90k and rented it out, after letting agent fees, ground rent etc, rental income is £350, mortgage costs me £500 ish pcm – a loss of £150 pcm….

    Just had my statement and I have paid 10k off my mortgage in 5 yrs.

    If I had just saved £500 pcm instead of paying a mortgage (perhaps in Premium Bonds), I’d now have 30k.

    So is it worth buying to rent? I know what I’ll be doing over the next 5 yrs, saving 30k is more appealing than paying 10k off my mortgage, so I’ll be selling up!

  • 24 Ben March 4, 2012, 12:53 am

    but you wouldn’t have £500 per month to save as you’d lose the £350 income from the rental property, you’d only have £150, i.e. your ‘loss’ (its not really a loss as you’re paying off capital on your mortgage). Therefore you would save £9000 as opposed to paying £10000 off the mortgage.

  • 25 James March 4, 2012, 1:47 am

    Hmmm, sorry just to be clear – I currently factor in (i.e. have spare) £500 each month from my income; at the moment I use this to pay my mortgage (for a property I don’t live in and rent out). But if I sold the property (I would just break even in the current market) I wouldn’t have to pay any mortgage anymore and that £500 could go straight into Premium Bonds every month, instead of paying off the mortgage – does that make sense or is my maths way out 🙂

  • 26 The Investor March 4, 2012, 9:50 am

    @James — Well, that’s a different argument then whether you should rent a house to live in yourself. From the maths you’ve described, it does sound like you’re going to need to see capital gains to make your investment work, or else wait a very long time for rents to rise (but remembering that interest rates will likely rise at some point, too). 🙂

  • 27 Bill March 8, 2012, 3:53 pm

    The thing that I can’t get my head around is that even if you own your own home, after you’ve paid the equivalent of decades’ or even a lifetime’s rent for it, you still have to pay to live there. Council tax is a not insignificant amount and then there’s insurance, repairs and all the rest of it.

  • 28 Chris April 20, 2012, 9:18 pm

    This article doesn’t mention the exposure to expensive service charges that are incurred with flats in London. As the landlord, you are liable for such charges but as the tenant you are not.

    – Leasehold flat value, London, £410,000
    – Service Charge and Ground Rent combined, £4,000 per annum in this real-life example

    So if you owned the flat above and had paid off the mortgage, you would still be hit for £333 per month!

    The water bills and buildings insurance are often included in the service charge, along with management company staff costs and contributions towards future building maintenance.

    But my point is, as a tenant these Service Charge and Ground Rent costs are paid for by the landlord, so should be included in “rent vs. buy” considerations.

  • 29 Chris April 20, 2012, 9:21 pm

    You always have to pay Council Tax where you live (Council Tax has to be paid whether you are the tenant or the owner-occupier landlord). So it is not a differentiator in the “rent vs. buy” considerations.

    However, I am in agreement that Council Tax is indeed a lot of money!

  • 30 Simon May 28, 2012, 11:07 am

    Some of the numbers in the comments don’t seem to correspond with reality, so I’ll add my real-world numbers to the mix. It’ll all depend on one’s situation, but in my cases it’s a no-brainer. Here are the “dead money” options I have in my part of South London right now:

    Rent, unfurnished: £1,150 pcm, increasingly yearly.
    Interest on the property I anticipate buying: £269 pcm, shrinking monthly.

    Something of a no brainer, even when you factor in stamp duty and a couple of tins of paint.

    I may choose not to, but in practice I could pay off that mortgage in about six years, at a push. This leaves me a lot of options when it comes to investments. No matter how long I live, I’ll never “pay off” the rent.

  • 31 The Investor May 28, 2012, 12:32 pm

    @Simon — Thanks for your comment. If we’re going to fully address reality, then I think you’re going to have to state what capital sum you’re using in addition to the mortgage to buy that property that is charging you interest of £269 pcm. According to a quick look by myself, an interest-only mortgage at 3% on £100,000 is £250 pcm, which is close to your £269.

    a) What can you buy for £100,000 that would rent for £1,150? Nothing much, I think. I pay £1650 a month rent on my unfurnished property, which would sell for £450,000 to £500,000. So you’re clearly going to be investing a lot of capital alongside it.

    b) That 3% is achievable today, provided you don’t go for any fixed interest mortgage or similar. But it won’t last forever.

    c) An interest only mortgage doesn’t ‘decrease monthly’ unless interest rates go down further (unlikely) or you’re paying off the capital sum borrowed — but you’ve not included those figures.

    d) You could invest your additional capital sum (which must be at least £100,000, and possibly much more) in something else that could generate a return that you could use to pay/reduce your rent.

    Don’t misunderstand me, I think there’s a case for property even in the ever peaky looking London market. Little beats having a capital asset in 25 years time that could easily be worth £1 million or so — I’m not one of those ‘ruin and rubble’ property bears.

    However I don’t see anything close to a ‘no brainer’, especially on your figures. 🙂

  • 32 mark August 16, 2012, 8:50 pm

    Best to buy, after mortgage term has ended, no rent and more holidays.

  • 33 Kenny August 26, 2012, 4:52 pm

    Hello all,

    Im in a bit of a dilema myself. I recently left the Army and became a student Nurse. However due to not having the means to pay off my debts i got a debt relief order (similar to bankrupcy but not as severe i believe). In one year i qualify as a Registered Nurse earning 22k a year along with my wifes wage which would make us up to around 35k a year. This on researching would give us a mortgage of 150k with 10 per cent deposit required.
    So my dilema………… Do i use the 5 years that i cant get credit to save up the deposit and then buy a house whilst in the mean time live in a poky 2 bed house with 2 kids. Bearing in mind i will be 30 and my partner 33.

    or………. do i wait untill i qualify in a years time and spend 600pcm on a large 3 bed house which would be a dream house to us. (we live in hull so 600 pcm gets you a small mansion).

    Also which no one has mentioned yet. If you go into residential care when your older, the government in a round about way will use your assets i.e your house to pay for the care once you pass away. Therefore all your lives savings will go back to the government?? we have a lot of situations like this at work!
    I would really appreciate any ones input or advice


  • 34 cheryl February 17, 2013, 4:01 am

    I am in a mortgaged property and have considered renting but as my mortgage per month is about 65% of what my neighbours rent is i’m quite glad of not paying rent. the main downside of owning is paying for the maintenance of the property ourselves but with a huge chunk of saving over renting i cant moan tbh.

  • 35 Laura Jones April 9, 2013, 10:54 am

    Reading all this I’ve been thinking. Personally I rent and plan to for the next decade or so. I’ve done some calculations of my own and estimated based on living to 90 and both parties renting up to 26; the cost over the lifetime of renting is double that of buying, after taking into account things like furnishing, replacing, repairing, insuring, even spending £10K on a new kitchen over the course. I’ve also factored in increasing rents based on what I pay (but I’m not talking about London as living there is a mugs game all round in my humble opinion) I live up North in a nice apartment currently.

    For me, it’s still going to be viable to rent, rent, rent until I’m about 40 when I will consider buying so I’m not risking homelessness in old age (I’m not having kids). This will inevitably cost me more, but I’m happier this way and above all I value happiness not bank balance.

    With regards to “still paying to live there” through council tax as I’ve seen commented – very true! I’ve looked into it and indeed the robbers do charge CT for life, regardless of age which is mean as hell. However if you have low savings you get benefits which could amount to 100% – at present mind, who knows where this craphole of a country will be if the Tories keep raping it.

    Personally, again, I plan to move around Europe via English teaching gigs during the next decade, then possibly/probably buy there, or even carry on renting if their policies are more fair/friendly/agreeable. And I don’t know that I want to even live to 90, and I don’t really want to retire in the traditional sense, rather only reduce hours as I enjoy the world of work.

    So in all buying is always the better option financially and security-wise. However I would not enjoy the responsibility of owning a house right now, as that’s just my attitude (thanks Hippy parents) I’ve moved around a bit and like the ability to up and leave as and when, for instance I moved to London and back over the last decade due to work.

  • 36 The Investor December 14, 2016, 10:29 am

    @All — As with yesterday’s post, I resurrected this flip side to the Buying Is Best article after a minor bit of tidy-up editing and adding a few new links. Quite amazing how little has changed in five years. I suppose low economic growth an static near-zero rates will do that — plus at least in London house prices and rents both started crazy high and are still crazy high, though much more so for buying than renting it seems to me.

  • 37 IanH December 14, 2016, 2:39 pm

    One thing that I think has changed in the last 5 years that is relevant to people debating buying vs renting in their retirement years is that if you own your home its value is not taken into account when assessing you for social care costs. If alternatively you have an equivalent sum invested from which you cover rental costs I believe your investments would be assessed as assets for the purpose of assessing your contribution for care costs, and you’d be faced with the full costs until your porfolio was down to £23,250. Apparently the upper limit will increase to £118,000 in 2020, but there is some delay in implementing this. Another factor is the proposal that lifetime contributions to care costs should be capped at £72,000, again from 2020. Knowlegeable commentary on this topic would be much appreciated I’m sure.

    I’ve no expertise in this area, but simply trying to work my way through to forming a decent plan for the rapidly approaching stages of later life. Ideally I’d like to move nearer to family in the SE from the Midlands, but going against the property price gradient makes this difficult to achieve. Renting in the SE based on income from a portfolio of around 450k seems viable, as I have a DB pension to provide living costs as well, at least until I need support in a proper retirement home, but the issue of ring-fencing assets from care assessment in home ownership seems a very substantial new consideration and I have not got my head round it at all. I am almost tempted to seek a solution to my dilemma from an IFA….

  • 38 John B December 14, 2016, 2:49 pm

    From April the daft Inheritance Tax allowance for houses passed to children will start to kick in, so having a house beats renting there. Others can explain the extensive BtL changes over the last 5 years.

  • 39 The Investor December 14, 2016, 3:07 pm

    @IanH @JohnB — Good point. There really would be equivalence across these assets in an ideal world.

    @CollReg — Welcome to my club. Pull up a pew, we could be here for some time. 😉

  • 40 hosimpson December 14, 2016, 3:22 pm

    I think buying is better than renting in cities. The population is growing and urbanising, and building up is not always an option.

  • 41 Learner December 14, 2016, 3:42 pm

    “If you own a house, you have to maintain, insure, and furnish it. Doing this costs you not only money, but time as well.”

    In my experience renters often have to do this too. It really comes down to age and finances.

  • 42 John B December 14, 2016, 5:59 pm

    Its easy to flip renting benefits into disadvantages. Flexibility becomes instability. Having a landlord handle maintenance is only good if they do it well. No commitment to a declining neighbourhood can mean losing out in a rising one. No need to furnish becomes tired sofas. No time spent on the flat management committee means no influence.

    Householders can have pets and watch their gardens develop, the last would be very important to me.

  • 43 Jeff December 15, 2016, 3:34 am

    Replacing worn furniture is optional. I started off with an old sofa from my aunt & only replaced it AFTER the mortgage was paid off (only a few years).

    Learn to do your own plumbing etc

    Anyone capable of investing is capable of buying valid insurance.

  • 44 FI Warrior December 16, 2016, 10:40 am

    An old issue is becoming increasingly significant in this debate, leasehold. While before it mainly applied to flats situated in blocks in the bigger cities, it has been recently recognised by the big house-builders as another cash cow for houses on entire new-build site estates.

    Actually fully legal, the extra charges hidden in the small print can make this type of ‘ownership’ toxic as you are at the mercy of freeholders who depending on that small print in your contract can get away with charging all kinds of unknowable extras on an annual basis. This is a massive misunderstood risk to the ordinary buyer who often doesn’t fully get that ‘their’ home is on someone else’s land.

    So it could actually be seen as the freeholder still being a landlord and the difference between the nominal ‘owner’ (leaseholder) and a straight-forward tenant is really just that the leaseholder is a step closer to merely having an option (like share options with their uncertainties too) to fully own the place one day.

    Importantly however there’s no guarantee of this if the freeholder doesn’t want to sell their golden goose and given that they (and their progeny) can endlessly milk the serfs on their land into the future, they would need a good reason. I know a few acquaintances who’ve crashed and burned with leasehold flats after being preyed on and parasitised by the freeholders, whether with their own dwelling or a buy-to-let that was supposed to be their pension. This issue can only get worse as the % of available accommodation that is leasehold increases and is often the only stock in any way affordable to those with no high-flying salary or wealthy parents.

  • 45 Mr optimistic December 16, 2016, 5:18 pm

    Yeah, be very careful about leasehold. Only became aware of this when my son was exploring buying a flat which seemed cheap. Apparently since the 80s many house builders have sold on basis of lease, not freehold. Various articles have appeared in the press about this being a ‘timebomb’ (yes, another one). Goes to pants as the remaining lease approaches 80 years, and pants squared around 50 years. Worth googling as it was all news to me a couple of months ago.

  • 46 FIREplanter December 16, 2016, 10:40 pm

    Leasehold flats are sometimes inevitable in particular circumstances and environment. In Singapore, the limited land available makes the average social housing a leasehold flat unfortunately. Nothing wrong with that, imo.

    However it sucks it becomes another ploy for private house builders, companies to squeeze the market for as long as they can. Just have to stay sharp and keep on top of the game. Good shoutout for the warning though.

  • 47 FI Warrior December 16, 2016, 11:29 pm

    @FIREplanter – it’s all very well being aware of it, but if it’s fully legally condoned and the only housing stock coming up is significantly leasehold, since that has crossed over into houses too now, then what choice do the next generation who simply want a human right like owning their own home have other than buying a poisoned chalice?

    Any other venture that ticked the same boxes as leasehold would fit the definition of a scam, it really has no place in a civilised society and whilst we are powerless to stop it given the corporate capture of modern life, we can at least educate people to vote with their wallets in just refusing to engage in any way.

    @TI – this is so toxic that (if my research is right) even places formerly under Brit law like Oz have discontinued leasehold as a legal option since it has been so obviously corrupted; perhaps worth an article in its own right given the educational principle of your site?

  • 48 WNomad December 17, 2016, 1:31 am

    Referring to Claire’s comments, it is possible to lead a perma-travel life and for it to be cheaper than home.

    I have zero bills aside from £10 per month for a simcard, this can be less is certain countries, e.g. Vietnam was £4 for 16GB a month.

    I slow travel meaning that I stay in one country (or neighbouring countries) for months at a time.

    I am in New Zealand now. Not a cheap country at all, but I have a £55 six month pass that allows me to stay in over 900 backcountry huts for no further payment. I cook for myself here and generally hitch when not hiking.

    My daily expenses are currently less than £10 and I am spending a summer in an awesome country with friendly people.

  • 49 EHB December 17, 2016, 10:30 am

    A long view –

    I started to buy my current house in 1976 for ~£13k incl a £3k deposit (not a good time) but, as time went on, the real capital value of the mortgage was progressively written down by inflation so that, in the end, it wasn’t worth worrying about and, simultaneously, inflation and government policy of restricting the supply of new housing was increasing the nominal value of the house so that it is now, I am told, ~£400k. If we say that inflation averaged 5%pa during that 40 year period (just my guess) then the current price should only be ~£91k; thus, the much bigger portion of the increase is down to a government policy of restricting the supply of housing (through restricting the supply of land with appropriate planning permission {apparently, I was recently informed, on average, as much as two thirds of the price of a house is in the land on which it is built}).

    This egregiously immoral situation is also extremely fragile because there is not in fact an actual shortage of land (only ~11% of our nation is built upon for any reason whatsoever {including housing}) and therefore, the release of only, say 1%, of land with planning permission for housing would over-supply the nation with housing. This release of land is simply a matter of political will – if sufficient of our population came to realise this fact they might well vote in a government with a mandate to do it – that is all that is standing between a house at a price of £91k and a price of £400k.


  • 50 RumTumF1 December 17, 2016, 5:37 pm

    It is also interesting to note how much of the desire to own a property in the UK arises from a traditional bias towards doing so. That same stimulus doesn’t seem to exist in some other European countries, where renting, even for a family with children, is, if not the norm, perfectly acceptable. But then many of these countries have more protection for renters written into law (such as Spain’s protected tenancy for the first three years in a property) that make it more attractive and stable to rent than it is in the UK.

    @EHB While that is certainly true of rural areas and many commuter belts, perhaps making their values more perilous, there is not the same ability to provide a surplus supply in many of the more prosperous urban centres, which should at least partially shield the value of properties in these areas. Long term, of course, Brexit may effect how many of our urban centres remain prosperous. And one only needs to look at many of the northern industrial cities to see the effect that reduced opportunities can have on property values.

  • 51 britinkiwi December 19, 2016, 10:04 am

    WNomad- welcome to NZ! DoC huts are an awesome resource aren’t they?

    Having sold up in the Uk some years ago and rented in NZ from then, then just recently completed a house build its probably the intangibles that swing it for me – having paid off my UK mortgage before shifting was an enormous relief and freedom (I even had an endowment insurance – maintained with MIRAS for 25 years- come through for me!)

    Renting is OK and you get to try different things (eg a lifestyle block with alpaca’s) but you remain at the mercy of the landlord, can’t put hooks in walls, repaint the bathroom and similar issues. Building a house to your design, now…and with the exchange rate constantly having gone south after we shifted and sold I’m feeling a little smug. Or at least happy to have dodged a 20% bullet.

    So new home built to our exact spec, the freedom to do what we want with it, the satisfaction of a minimal mortgage, easily serviced through income for a year or two to pay off, but the woes of a wasteland garden to address in the summer (well, next week, really….). WNomad – fancy a job? Nelson, South Island?

  • 52 Jason December 19, 2016, 12:07 pm

    “… house prices… roughly follow income growth over the long term.”

    It’s been a very long time since that was the case. 20 years?

    I also think London property might need it’s own article. There is a supply/demand issue with London property.

  • 53 Daniel H December 21, 2016, 8:30 pm

    The downside of renting is you’re mostly at the whim of the landlord once contracts have expired, through no fault of your own.

    Landlord wants to sell? Sorry, out the door you go
    Landlord wants to move in his daughter so needs you out in a month? Good luck out there buddy.
    Landlord wants to inspect the property? 24 hours notice.

    Additionally, want to own a pet? Paint the walls? Put a shelf up? Good luck finding a landlord that will accept that, you are there to protect and nurture his investment, not ruin it with your “homely” accoutrements.

    Renting would be fine if you as a tenant were put on an even keel, with more rights, longer contracts etc, but at the moment everything is tipped in the landlords favour.

    And lest we forget the awful concept of dealing with lettings agents and their fees (although I believe the government will ban them from doing so soon, unless they appeal)

  • 54 Alex January 12, 2017, 11:57 am

    I might be (or not?) in minority but I actually didn’t need a mortgage for our £40k house bought at auction.
    We paid for it using a 3% personal loan over 6 years which will really be paid in less than 2.

    I would have never signed up for a 30y mortgage on a £300k house, even though it wasn’t really a possibility as with my partner’s income and my own we could barely get a mortgage close to that figure.

    So I guess now you could ask how many thousand miles away from London is your house? It’s a question I was asking myself when I got into this and I found out that getting a house on a mortgage for less than £200k “near” London is quite a challenge anyway, which is why I decided to find one for much less and only drive 10-20 miles more than the other, more expensive, option.

    Is it a better choice in this case to get a house rather than invest the money in something else or even better not signing up for any debt at all and just rent a flat “near” London (as for the same monthly price we could only really afford a “big double room”) ?
    You tell me, however I would be really curious to see what you have to say about this option which is clearly available to everyone even though very few people seem to be talking about it or even consider it.

  • 55 JJ January 15, 2019, 2:58 pm

    What is the impact of tax on the rent vs buy debate?

    A renter pays tax on their income before paying rent, then the landlord pays tax on the rent money after they receive it.

    An owner occupier who owns outright does not pay tax on the imputed rent. The house provides somewhere to live before CGT (imagine it’s a tax free dividend) and they don’t have to use their taxable income to pay rent.

    This might be surprisingly important. For example a renter renting a £300,000 house at £12000 per year, pays 40% tax of £4800 on that portion of their income, the landlord pays 20% CGT at £2400. This means the government gets £7200 per year. This is 2.4% of the value of the house. This increases the ROI by 2.4 percent per year for owning vs renting.

    Many European countries with rental cultures tax imputed rent for owner occupiers to put the two groups in the same tax position.

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