Around three in ten adults don't own their own home. However, this can sometimes be a good thing, especially when house prices fall...
In the spring of 2005, I sold my family home, having moved into rented accommodation in late 2006. In other words, I leapt off the property ladder three years ago and have yet to return.
My decision to exit the property market was driven by my worries about the UK's twin booms in house prices and personal debt. I feared that Britain was in the grip of an unsustainable housing boom which would, in time-honoured fashion, turn to bust. In hindsight, I got out far too early, as house prices continued to rise for a further 2½ years.
However, given that house prices have fallen by an average of 8% from their peak in August 2007, I'm starting to feel more comfortable with being a tenant. But sadly, I still come across homeowners who look down on renters, with some people regarding us as socially inferior, simply because we don't own a property. (When this happens, I smile cheerily while thinking of my tidy stock-market portfolio.)
Anyway, as with all things, there are pros and cons to renting, and the same goes for buying. Here are a few plusses and minuses I've encountered over the years:
The Pros Of Renting
1. You can save money by renting
Without rising house prices, renting is similar to `buying' a property with a 100% interest-only mortgage. For instance, I live in a three-storey, four-bedroom terraced house which would cost around £650,000 to buy. With a mortgage rate of 6% a year, the annual interest amounts to £39,000, or £3,250 a month. My monthly rent is just over half this sum, so it's a lot cheaper for me to rent than to buy.
2. You don't need to DIY
When it comes to home improvements, my nickname is `Clumsy Cliff'. Hence, I don't miss the endless rounds of DIY, maintenance and repairs required to keep a property in tip-top condition. This is my landlord's responsibility and, as a reliable tenant, I've had no problem with getting him to cough up for ongoing maintenance and repairs.
3. You get no unexpected bills
Another benefit of being a tenant is that you're not landed with a huge bill when something goes wrong. For example, if the boiler breaks down, the bill falls to my landlord and not to me. All in all, this probably saves me £1,000+ in annual housing costs. Of course, although tenants have fewer bills than homeowners, we are forced to cough up for some extra costs. For instance, there are inventory fees when entering and leaving a property, cleaning costs on exit, etc.
4. You're not stuck with bad neighbours
I'm fortunate enough to live in a nice street in one of London's most affluent boroughs. Furthermore, I'm lucky in that I have lovely neighbours, several of whom also have young families. However, if I were a homeowner with difficult neighbours, it would be much more difficult to move away from the problem. Relocation costs for renters are much lower than those for homeowners, largely because there is no stamp duty to pay.
The Cons of Renting
1. You have no stake in the housing market
When house prices are rising strongly, as they did between 1995 and 2007, homeowners' wealth grows massively. What's more, the larger your stake in the property market, the more money there is to be made during house-price surges. Thus, personal wealth in Britain has increased by trillions of pounds since the mid-Nineties. Conversely, rising house prices do nothing positive for tenants, but, equally, we are not exposed to the housing downturn which is now gathering pace.
2. You can't feather your nest
Most professional landlords are fairly easy going when it comes to wear and tear on their properties. However, amateur landlords tend to be more precious when it comes to preserving their prize property. In some cases, you may be forbidden from hammering in even a single nail for a picture. Indeed, you might even be fined for the greasy marks on walls left behind from putting up posters using Blu Tack!
3. You could have a bad landlord
Most of the landlords who post on our Property - Markets and Trends and Property Investing - Practical discussion boards are professionals who are happy to share best practices with other landlords. However, not all property investors are so sensible, with some seeing their tenants as nothing more than money-making machines.
In my latest incarnation as a tenant, I've been perfectly happy with my landlords. The first immediately emigrated to New Zealand with his family, so we had complete privacy. Likewise, my current landlord lives in the Isle of Man, making life equally peaceful. Then again, as a student and young worker in the Eighties and Nineties, I had a few dodgy landlords. Indeed, one neglected to pay his mortgage for eighteen months, forcing the building society to repossess and auction off the property!
4. You can be forced to move
Finally, with most private tenancies lasting a year and stipulating a notice period of one or two months, you can be turfed out at fairly short notice. For example, just before I went on holiday last summer, my previous landlord informed me that my lease would not be renewed, as he had decided to sell up. This gave me nine weeks to find a new place to live. Happily, I signed a tenancy agreement for my present home (diagonally opposite in the same street) within a week of returning from holiday. All's well that ends well, as they say!
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