On Monevator’s blog, there is an interesting article on the old conundrum of buying vs renting.
Despite rising house prices and high house price to income ratios, it still makes a lot of sense to try and buy rather than rent. The main incentive put forward in the article is the ability to pay off your mortgage and live rent free during your retirement. This is a big saving, and as good as creating a pension.
There are certain circumstances when renting is a better option (or at least renting is the only realistic option) For example, if you
- frequently move
- live in an area like London where house prices are beyond reach of first time buyers.
- If rented properties are cheap and good quality in your area.
In many ways there are economic benefits to the economy if more people rented rather than bought. For example, in Germany and France the ratio of people who rent is much lower than UK. In the UK it is around 78% and in France as low as 55%. A higher rented accomodation can make the labour market more flexible. Also, if more people rent rather than take out a big variable mortgage, it means interest rate changes are less damaging on a small group of mortgage holders.
Yet, though it may be good for the economy to encourage renting, from an individual perspective it still makes sense to buy if you can. Don’t just look at costs of mortgages vs cost of renting. Look at long term benefits. One is a perpetual payment, the other is an investment.
The big problem is that many first time buyers would love to buy, but just can’t in the current climate because banks require large deposits for the expensive houses. This is unlikely to change in the short term, it is really related to the fundamental shortage of supply, which has driven house price to incomes ratios higher