Baby Ace: Renting vs buying: Home ownership has become the holy grail, but renting gives you choice and flexibility

Friday, March 14, 2014

Renting vs buying: Home ownership has become the holy grail, but renting gives you choice and flexibility

By

Matthew Curtis

My names is Matthew and I rent my home. This confession is made because in Britain there’s a stigma attached to being a tenant. It’s a little like having a guilty secret.

Some people even feel they have failed in life.

Which is unfortunate. Because, while owner-occupiers account for 65 per cent of householders in Britain, the number is falling fast.

In fact, according to housing expert Natalie Elphicke, just 49 per cent of us will own our homes by 2041.

Which means that within 27 years, renting could be the norm. But how worried should we be, and is renting always the worst option?

While buying a home is a dream for the majority of Britons, it isn

While buying a home is a dream for the majority of Britons, it isn’t necessarily the best option for everyone

There is a tendency to equate property ownership with national prosperity. But this isn’t necessarily the case.

In Europe, some of the highest levels of home ownership are in Bulgaria (hardly an economic powerhouse) and Spain (in the economic doldrums thanks to a burst housing bubble).

At the other end of the spectrum, about 45 per cent of Germans own a home — and in the capital, Berlin, that figure falls to just 14 per cent. In prosperous Germany, it seems, renting is the way to go.

Nor has home ownership always been the norm in Britain. In the Victorian era, when the phrase ‘An Englishman’s home is his castle’ was coined, only one-in-five Britons had their name on the deeds to a property. Back then, we, too, were a nation of tenants.

To buy or not to buy is a tremendously complex argument. For while buying a home is a dream for the majority of Britons — and will likely leave them better off in the long run — it isn’t necessarily the best option for everyone.

There are, after all, some advantages to being part of so-called Generation Rent. I am fortunate insofar as I could buy a home. For me, however, renting is the best option.

As a tenant, home is a three-bedroom, 17th century, Grade II-listed property in one of the most sought-after villages on the south coast. It costs me £1,100 a month in rent. I would not have this standard of living as a home owner.

In the same village, I might be able to buy a considerably more modest, two-bedroom property for £300,000. Yet even with a £50,000 deposit and a £250,000 mortgage, I could expect my monthly payments, at 3.75 per cent, to be £1,240 on a 25-year term — rising with any increase in the Bank of England base rate.

What’s more, I’d have to find a further £12,000 or so to cover extras such as stamp duty and solicitor’s fees. And it doesn’t end there.

Buy a home and there’s far more than just your mortgage repayments to think about.

There is boiler issues, repair bills, general maintenance, buildings insurance — the list can be long and expensive.

I did own my previous home, a small flat. And the repair bills were significant. I’d only been in the property a few months when I had to replace the boiler and several radiators. The cost: about £2,500. As a tenant, all of these expenses are someone else’s problem.

Of course, if the property market is in growth, these costs are soon offset by the rising value of your home. Although the market did provide handsome annual ‘real returns’ of 3.4 per cent after inflation in the period between 1968 and 2004, this isn’t a given. It is certainly subject to regional variation.

The Land Registry’s most recent House Price Index revealed that London property prices rose by 2.1 per cent in January.

In Yorkshire and the Humber, the picture was rather less rosy — there they fell by 1.4 per cent. And even in London, you can be better off renting.

A report by property website Zoopla revealed that after seven years, the typical tenant in the capital is £82,412 better off than someone who buys an equivalent property with a 10 per cent deposit.

It claimed that it takes 18 years for the buyer to be better off than the renter. Surprising stuff.

But there are further advantages to being a tenant. I wanted to sample a new area, without the rigmarole of buying, until I was certain I wanted to stay there.

And what if your circumstances change?

As a tenant, you can move at a month’s notice. For many, that is a significant benefit.

So, let’s not be so gloomy, and let’s not pretend that home ownership is some sort of privileged destination we all have to reach. Renting can be just as satisfying.