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Property leases have jumped in the past five years. Today, there is a record £50bn spent on rentals. And, the total as a percentage is expected to rise past 25% by 2021. Renting is the in thing and more and more people are doing it thanks to a combination of lifestyle and lack of money. The craze doesn't look like stopping anytime soon as millennials lead the charge. Maybe the percentage will be closer to 50% than 25% in another ten years.
For many people, the idea of owning a home is better than renting one. Sure, leases have their advantages, but they aren't as popular in terms of desire. The problem is they are too expensive and young people particularly can't afford to get on the property ladder.
The question is, then: what makes buying a wiser choice? And, is it speculation or is it the truth? There's no doubt the following are legitimate. It begins with cash, moves onto an investment, and ends with tax.
Buying Is Affordable Long-Term
How can this post start out by saying that buying is expensive and then change its mind? Is it hypocritical? The answer is difficult to explain yet it's worth a try regardless. The initial outlay for a property is high. In fact, some people may say it's ridiculous and prices the poor out of being a homeowner. Regardless, there is no doubt that most people don't have tens of thousands of pounds lying around to use as a deposit.
If anything, stuffing it in a mattress is a terrible backup plan. Think of the mess. But, once you are on the ladder and inside of the house, then the game changes. On average, a typical rental property in London is around £1,500 for a one-bedroom flat. A two-bedroom home in the 'burbs is half over the course of a mortgage. And, gamblers can get it for less if they sign a non-fixed agreement.
So, after the pitfall of finding the money for the purchase is sidestepped, the expenses plummet. Owning a house is by no means cheap but it's less expensive than renting.
It's A Flexible Investment
Unless you buy it for a particular reason, a home is a place to live and raise a family. Seeing it as an investment is a little weird because it isn't a stock or a share or a bond. It isn't a piece of jewellery or bullion of gold. It's a building with a roof and all the amenities needed to be comfortable.
Look at it from a different angle, however, and you'll see the light. Every time the bank receives a payment, you get a chunk of equity. So, your ROI increases on a monthly basis. Plus, when the total amount is paid off, the house is pure profit. There may be a handful of taxes to pay, but the majority of the money goes into a back pocket of your choosing.
As the saying goes, renting is dead money. It serves a purpose in the beginning, but the cash could go towards a nest egg for the future. And, depending on the market, it may appreciate to twice or three times the value. Is that not flexible?
Okay, they are subject to the rate of inflation which has changed regularly since Brexit. A recent increase by the Bank of England has resulted in homeowners paying extra per month for their mortgage. However, the amount is small in comparison to renters. Usually, the rise isn't as high as . Renters have a lot more to deal with for various reasons.
To begin with, their cost of living is dependant on the landlord's expenses. Lots of property owners with tenants often bump up the amount to cover their backs when times get tough. And, everyone across the board does it which means there is no safe haven. After all, there is no fixed contract like a homeowner has with a lender. The landlord is free to increase rents as he or she sees fit.
This is a crucial reason buying is officially better than renting. Not only is it more affordable, but there are fewer nasty surprises in the pipeline. Well, there are as long as the contract doesn't hold you to ransom.
The Downsides Are Disappearing
Let's not pretend as if there aren't any downsides to owning a house. Mortgages are secured, which means you will lose everything if you can't keep up with the payments. Even people who apply for bankruptcy don't get their guaranteed loans wiped off of their balance sheet. So, taking the plunge to pay for a property is risky business.
There are also the little things such as moving. Anyone who has moved home before will understand the stress and effort it takes to get set up somewhere new. It's not enjoyable and it's such a nightmare that buyers consider the implications before doing it again. The good thing is that there are solutions for the downsides. Wren Realty has a free downsizing checklist to make organising a move straightforward.
Oh, and the mortgage thing isn't as scary as it sounds. The fact the payments are quite low is in your favour. Plus, you can negotiate a deal where another asset takes the property's place, such as a car or a business. That way, you won't be homeless.
The introduction said this post would finish with tax and it wasn't a lie. Tax is the bane of most people's' lives because funding the government sticks in the craw. A property allows the average Joe and Josephine in the street to get revenge. To date, landlords with private property can claim £0.75 of the finance costs at the high rate. The other £0.25 is deducted from the low rate. See The Telegraph for more.
What this means is owning a home is a potential money-spinner. Regulations change over time so be careful and watch out to ensure the break lands in your favour.
What do you think - does buying trump renting?