When I was getting married, quite a few years ago now, we were faced with quite a dilemma as to purchase a house or to live in a private rented house.
Now there were arguments from our individual points of view. You see my wife came from a country where renting a house or flat was the norm whereas here in the UK, the ambition of virtually all new couples is to own their own property. The other issue was I worked overseas quite a lot, often for years at a stretch.
There are both good and bad aspects to each alternative and so we had a look at them and tried to summarise them in the following way.
The beauty about renting a property is that to some extent, you can pick and choose. By this I mean if you were a new couple starting out in the world as we were, your requirements at that time would be substantially different to later on in life when you probably would have several children.
In today’s somewhat unstable economic environment, there is very little chance for an increase in wages, particularly if you are working the same job. This means that your income is fixed and so as far as possible, you would want to make your outgoings as fixed and as regular as possible also.
Obviously, where you live and how you live are essential ingredients of the actual cost of living.
Depending upon how the economic state of the country is at any one time, if you have a mortgage on the property, then you are susceptible to any changes in interest rates. Now I fully appreciate that there has been little change over the past number of years but all the indications are that this will alter within the very near future.
However, if you are renting a property then your rental outgoings are fixed, particularly if it is a long term rent. It doesn’t really matter what the economic situation is throughout the period of your agreement because, unless under special circumstances, the landlord is unable to change the rent until the agreement is due for renewal.
With a mortgage to pay for your property, your agreement is normally anything up to 25 years. You are tied in to whatever interest arrangements the lender wishes to make and therefore your payments can often vary with increasing frequency and would bear no relationship to your earnings, which in all likelihood will not have increased throughout the same period of time.
As I mentioned earlier, one of the other main advantages of renting property is the ability to move either to another area or to increase the size of the property. You simply end one rental agreement, locate a new property which meets your requirements and then enter a new rental agreement. If you purchase a property, it is not so simple. First of all you would need to find the new house and this would relate purely to its affordability. You then need to sell your old house and you have the inevitable costs associated with these two operations.
When you are living in a private rented house, all repair costs to the building are the responsibility of the landlord and not yours as the tenant. This could be something as small as a leaking water pipe but in reverse may very well be something as serious as major storm damage to the roof of the building. Whichever it may be, it is not your cost and it is not your responsibility.
You may very well decide later on down the road to eventually purchase your own home. As you will know, mortgage lenders require a substantial deposit these days and saving for it can be quite a challenge. When you rent a property, the landlord will require a deposit but it normally equates to one month’s rent and to protect your interests, is now protected since it must be placed in a registered scheme.
I have to be honest though, not everything to do with living in a private rented property is perfect and the big question always remains – at the end of the day, you own nothing!
It is not your property; it is not your investment and it is not something that you can do with whatever you like. What I mean by this is that you are subject to the whims of your landlord. If he decides to remodel a house in order to improve it in a manner which does not meet your tastes, it may be that your furniture does not now fit and so you would have to replace it.
But there are other more important issues from a financial point of view. The deposit that you place with the landlord is to all intents and purposes redundant money. Yes, all things being equal, you will receive it back in full at the end of your rental period. However you have not had the use of it although your landlord will take advantage, and at the same time you will not be getting any return in the form of interest on the deposit whilst it is out of your control.
In a similar way, the rent that you paid to the landlord is effectively lost money as well. All you get from the rent is a space in which to live; you have no other economic advantage. It is not buying you your own house; neither is it assisting you in building up your own deposit for a possible future purchase. The money goes to your landlord and whilst he may arguably need a proportion of it to maintain the property, in most circumstances, the rent will be used to finance the mortgage that he has on the property in order to purchase it in the first place.
In other words, the rent is not being put to your advantage but to that of the landlord and you have to ask yourself, if this is a financially sound exercise to do with your hard earned money? Would it not be better to put the money into a mortgage and purchase your own property? After all, you will still have the same utility expenses and yes, you may very well have to do your own decoration and superficial repairs at your own cost. But with the correct insurance in place, you need have no major worries regarding catastrophic repairs. Your only main challenge would be finding the necessary deposit but again all is not lost. There are various governmental schemes available at the moment that can help reduce the level of deposit quite considerably.
Let me try and summarise each side of the argument in the following table:
|Item||Smart Move||Financial Suicide|
|Deposit||Small & Refundable||No interest or asset growth if invested in your own property|
|Repairs||Landlords Problem||Part of the rent but is often covered by insurance which is also paid by you within the rent.|
|Rent||Fixed throughout||Used by landlord to pay his mortgage instead of you paying for your own.|
|Flexibility||Can move easily||No benefit from increase in property value when you move to a larger or better house.|
Naturally you will make your own decision but if I was in your shoes, as I was in the past, can you guess which choice I would make?