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There’s Nothing Wrong With Renting

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There's nothing wrong with renting


By Sarah Modlock

July 09 2007

With interest rates heading upwards once more and further rises expected this year, it's not surprising that people are having a tough time getting onto and moving up the property ladder.

What is surprising is that more people do not choose to rent instead of going through the pain of trying to buy.

Being a tenant rather than a home owner used to be the norm in Britain and it's still the very popular in many countries around the world. It's only in the last couple of decades that home ownership has become a goal for most people in the UK.

These days, there is almost a stigma attached to renting rather than owning, particularly from your 30s and upwards. How many times have you heard it described as 'dead money'?

Have your say: should you rent or buy?

Spending half our salaries on our mortgages

One in four people in the UK live in rented accommodation, with two-thirds of tenants saying they rent because they cannot afford to buy.

With interest rates at their highest level for five years and with the latest Nationwide index showing average house price standing at £184,070, this is hardly surprising.

A recent study by the Woolwich found that twenty-something first-time buyers were now having to set aside a third of their take-home pay each month for their mortgage repayments, with first-time buyers in some parts of London spending half of their disposable income on their home loans.

Choosing to rent not buy

However, house prices and interest rates are only part of the story: there are other lifestyle factors driving the rental boom.

Gone are the days when people aspired to have a house, two cars, kids and a dog; research by Birmingham Midshires shows that almost one in six of today’s renters no longer aspires to own his or her own house, and a further 12% choose to rent in order to enjoy the greater flexibility it offers.

In addition, the findings also show that far from doing anything to get a foot on the property ladder, 12% of Britons would prefer to rent in their ideal area, rather than own a property elsewhere.

Recent house price growth has been well documented, so it's hardly surprising that many people believe they will struggle to buy, says Tim Hague, managing director of mortgages at Birmingham Midshires.

"However, the findings reveal an interesting trend: people are actually making a conscious decision to rent rather than buy. The buy-to-let market has experienced consistent growth over the last 10 years, and these findings help to demonstrate why. More and more people now see letting property as an achievable investment and an important part of a balanced investment portfolio."

In fact, demand for rented properties seriously outstripped supply and rent levels rose during the three months to the end of May this year according to the latest quarterly survey by ARLA - the trade body for letting agents.

Renting can be cheaper

Apart from the security and investment growth which most home owners enjoy, they maintain that buying is always cheaper than renting in the long run.

Abbey’s annual Rent vs Buy report generally supports this, revealing that home owners are better off than renters by an average £24,3721 (6%).

However, for the first time, the cost of owning a property over a 25-year period is higher than renting in some areas of the country.

The biggest savings for buyers can be found in east Scotland (£81,157 = 20%) and west Scotland (£69,779 = 20%). The biggest savings for private tenants can be found in Wales (£27,416 = 8%) and the south-west of England (£21,009 = 5%). However, this does not take into account the fact that people who have bought will own a mortgage-free property at the end of their mortgage term.

Previous Abbey Rent vs Buy reports show that the gap between buying and renting has been narrowing each year. House price inflation of four or five per cent over the past year has tipped the balance towards tenants, but homeowners still have the advantage in the end as a homeowner will own the property outright at the end of a mortgage term.

Abbey’s report showed that the average cost of buying a property over 25 years is £379,341 compared with £403,713 for renting, so the average saving (£24,372) is approximately equivalent to an average year’s salary.

Sue Hayes, Director of Abbey's Product Marketing said: In the short term, a private tenant might be up to £1,000 a year better off than someone who had bought a property in areas such as Wales and the south-west.

Of course, home owners do not have landlords who can serve notice to vacate a property or put up rents and administration charges. Private tenants are also much more restricted in terms of their lifestyle or how they can modify their property.

But despite the savings that can be made compared with renting, Abbey warns that buying a home should not be considered a guaranteed investment, even over 25 years.

It is difficult to predict how house prices will move over such a long period. In the last 15 years, house prices have fallen as well as risen, and interest rates have fluctuated by more than 10%, showing that repayments can vary significantly.

It doesn't make sense for me to buy

All of which means that millions of successful professionals are now choosing to stay within the rental market rather than taking out a massive mortgage on their first home.

You would probably assume that Simon Harding owns his own home. He's 37, has a successful career in IT and is no slouch when it comes to organising his life and his finances. Yet he chooses to rent his two-bedroom Victorian house, rather than buy.

"Although I was initially renting because I couldn't afford to buy, I'm now choosing to rent now and couldn't be happier," he says.

"It never ceases to amaze me how much people sneer at renting. As soon as the topic turns to property and mortgages I know I will be met with the usual round of jokes and questions.

I'm sure some people think I'm broke or am trying to recapture my student years by avoiding responsibility, but this couldn't be further from the truth. Renting suits me, it's more flexible at the moment and I just don't think it makes any sense to buy right now while the market is still so high."

It's time for other would-be homebuyers to follow Simon's lead.

Source: http://money.uk.msn.com/mortgages/mortgage...umentid=5483242

Edited by studdymx

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Why? More rental available could put downward pressure on prices.

EDIT - this bit

Being a tenant rather than a home owner used to be the norm in Britain and it's still the very popular in many countries around the world. It's only in the last couple of decades that home ownership has become a goal for most people in the UK.

isn't a fair comparison though. They don't have AST tenancys there (if it's the continent that they mean), so there is no need to buy to get a bit of security.

Edited by edwardbear

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If this trend continues rent will continue to rise. Not good new for renters.

the only problem is...........

there is the same number of property now and after

there is the same number of people who need this property

so demand hasn’t changed, and supply hasn’t changed, so the rent will not change

i have told you this at lest 5 times already, and im sure others have too.

But let me not be arrogant here and assume you have a human brain, let me assume you are a fish and have forgotten everything I have told you tens of times.

Here goes

For more people to rent, they must have come from somewhere (assuming they are not beamed down by aliens to spite our housing problem) they have come from a property they owned (doesn’t matter if a renter moved into another rented property because httere is no increase in renters!). This makes no net increase or decrease in demand or supply respectively so prices are unchanged.

Taking an extreme view point, what if everyone tomorrow decided to rent? In your model rent prices would be astronomical! But in reality, the homes they have sold will now be rented out. So the number of renters have indeed increased, but so has the number of properties for rent!

To be honest, if I had a kid and it took this many times for him/her to get it, I would be looking to exchange said kid pronto for one with a memory that lasts slightly longer than a goldfish!

Edited by cells

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