I love renting. I love renting so much, I don’t know if you could pay me enough to buy a house to live in (feel free to try though – PayPal details available on request).
For a few years, I lived purely in Airbnbs. That was the total dream: a single payment to cover every possible bill and the ability to make week-to-week decisions about where we wanted to be. Now I need a bit more stability, so I’ve had to sign a 12 month contract and start dealing with utility bills – and that’s quite far enough in the direction of owning, thank you.
Why is renting so great?
If something breaks, it’s someone else’s problem. May as well get “coming across as lazy” out of the way early. Honestly though, homeowners seem to spend half of their weekends doing random house-related chores. I have enough work to do at work: if something breaks I can get someone to handle it, and if the owner wants to do no upkeep and run the place into the ground that’s their problem – I’ll just move.
I have incredible flexibility. AKA “I don’t have to be a grown-up and make a commitment that lasts more than 12 months”. Decide we want an extra bedroom? Decide that actually we’d like to spend less on our housing? Feel like trying out living in a different location? Need to move for schooling? Done! A small amount of hassle and £50 on van hire later, and we’re done.
There’s no pressure to find somewhere “perfect”. The notion of the “forever home” is totally alien to me. How is it possible to anticipate every future desire you might have and buy a property today that meets all of them? I mean, my preferences have changed since I started writing this article five minutes ago – can you really say that in 20 years’ time you’ll still be fine with not having a garage and definitely still want a huge garden with all its attendant upkeep?
I don’t end up with my home dictating my life choices. When you’re tied to a home, you end up in a situation where your choices about the job you take or even the size of your family are constrained by a pile of bricks you bought once – which seems ridiculous. You could sell and buy somewhere else of course, but that’s a months-long process with thousands of pounds of expenses involved (not even mentioning the emotional trauma).
I don’t have to balance financial and emotional factors. What if I really wanted to move, but running the numbers told me it was a bad idea? What if the value of my home went down – would I start resenting it and feel less good about living in it? What if I loved living in my home, but prices in my area seemed “toppy” and it would make sense to sell and take the profit? I don’t want to worry about any of this stuff, and I don’t have to!
Reasons to prefer ownership
Maybe your priorities are different and you actually prefer ownership – OK, that’s fine. But renting and ownership are rarely pitted against each other in a reasoned way: there’s a default view that renting is a second-class status. These are the main reasons that are usually given:
“Renting is throwing money away”
See also: “you’re just paying your landlord’s mortgage”. These phrases are emotively worded and lend themselves well to lecturing impressionable youngsters, but suffer the drawback of not being true.
There’s an assumption that when you own a home, your payments are building your own equity rather than feathering someone else’s nest. Not the case:
- Part of your mortgage payment is interest. This is “thrown away” money that you never see again, just like rent.
- Part of your mortgage payment is repaying the capital. This is just a forced savings plan: if you repay £500 of your mortgage each month, this is exactly the same as not having a mortgage and just moving £500 into a savings account.
- You’ll have upkeep costs that you don’t have as a renter – from small things like unblocking the gutters to big ones like replacing the roof every so-many years. This is all money you never get back.
- A bit more abstract but no less real, there’s an opportunity cost on your capital. In other words, if you’d put your cash into investments rather than a home, they’d be earning you money while your house is earning you nothing.
In other words, there will always – always, even once your mortgage is paid off – be costs associated with keeping a roof over your head. It’s just that the make-up of these costs is different for owners and renters.
When you add up the costs of each option, there will be times and places where owning is cheaper and those where it’s not. If you wanted to make a purely by-the-numbers decision about how to live, you can do – but you need to make it a fair fight by including both the visible and invisible costs.
You’ve got to get on “the property ladder”
This statement tends to be made by people from a generation who experienced (and largely benefited from) a period of history where house price appreciation was unusually high. It’s based on the assumption that prices will continue to increase faster than your earnings so get ever-further away from you unless you’ve managed to grasp that first rung…which isn’t necessarily true.
Even if it is true, remember opportunity cost: as a renter, the money that you would otherwise put into your home can be invested in something else. Including property!
This is what I do: I rent my home, but own other properties that I rent out. I’m “on the property ladder”, yet have all the benefits of renting. If I decided I’d rather take that extra money and invest it in the stock market instead, that would be a perfectly reasonable thing to do too.
There are tax breaks for being a homeowner
It’s true that if you own a primary residence in the UK, you benefit from capital appreciation then don’t have to pay tax on it when you sell. The tax advantages in some other countries are even more attractive.
That’s a nice bonus if you want to be a homeowner anyway, but it should never be a deciding factor. So I’m meant to live a lifestyle I don’t want just so I don’t have to cut the government in on my (unearned) profits? C’mon.
Renting is less secure
OK, you’ve got me – this is completely true. You can’t move into a privately rented property and know for sure that you can stay there for the next 20 years as long as you keep paying. However, “less secure” and “flexible” go hand-in-hand – so it’s a matter of deciding which is the most important to you.
The problems with renting
Renting isn’t perfect. In the UK, you can be asked to vacate your home with only two months’ notice – which isn’t much if you have kids in a nearby school, for example. You’re reliant on your landlord or their agent to maintain standards and deal with repairs – but as owners are often amateurs who just own a single property as an investment and the standards agents are required to meet are low, you can’t have much confidence they’ll do as they’re meant to.
Landlords complain that there are too many rules to follow. Tenants complain that landlords don’t perform their duties properly. They’re both right: there’s heaps of legislation, but it’s poorly enforced and many amateur landlords have no idea most of it exists.
It’s a difficult balance to strike: tenants need protection from unscrupulous landlords, and vice versa. The incentives need to produce the right behaviour on both sides. I don’t pretend to have the answer.
But I do believe that renting will become more popular: not just from necessity, but because the “throwing money away” dogma will fall away and ever more people will realise that renting actually meets their needs better.
And as it gets more popular, standards will have to rise. The new wave of renters won’t settle for a second-class experience, and nor should they have to. I don’t know quite how it’ll happen, but I’m looking forward to finding out.
14 thoughts on “Why renting a home is better than owning it”
Interesting to get a positive perspective of renting in the UK, especially from a property investment guru! The obsession with home ownership is a very British thing. In other countries, like Germany, renting is the norm and people just save and invest in other ways. It has all the benefits Rob mentions above, including the flexibility of moving to other towns to take job opportunities there. This means a more flexible labour market, which is no luxury in the current situation.
Thanks Maarten! I’m all for people buying their home if that’s the right choice for them, but the British societal belief that renting is inferior seems unhelpful.
Nice article, it gives an interesting perspective. However, from a strictly cashflow point of view (and ignoring any capital appreciation/depreciation) I don’t agree when you say ”if you repay £500 of your mortgage each month, this is exactly the same as not having a mortgage and just moving £500 into a savings account”, even considering the bullet points before and after that one. As tenant, after I’ve put £500 into the savings account, I still have to pay the monthly rent, which is much bigger than the interest I would typically pay on the mortgage. Let’s say in London I can buy an OK(ish) studio-flat in an OK(ish) area for around £200k. With a 90% mortgage at 1.5% interest, I would ‘through away’ £225 monthly, in interest. If I rented the same flat I would ‘through away’ £900-£1,000 monthly, in rent. So I would be at least £675 poorer every month by being a tenant. Sure, this figure will reduce if you consider the service/maintenance charge that I’d pay as owner, plus occasional repairs, so the cashflow advantage of being home owner is less than people perceive. Nevertheless, I think I am still loosing considerable cash every year by being a tenant, several thousands £. The tenant vs owner choice is a difficult one these days, particularly for people who live in London where price have gone up so much in the past 10 years, it is unlikely that we (new homeowners) will enjoy much capital appreciation before 15-20 years.
Thank you for commenting! I don’t disagree at all. I was just saying that the capital repayment part of a mortgage is no different from investing the equivalent amount in something else, but of course if your rent is higher than the interest + other costs of owning you’re going to be worse off.
As I said, “When you add up the costs of each option, there will be times and places where owning is cheaper and those where it’s not”.
London is an interesting one, because yields are so low it works out better to rent a surprising amount of the time – so if you’re not expecting much capital appreciation, renting is a strong option.
Really though, emotion and practicality matters when it comes to your home, so the “security v flexibility” trade-off probably matters more than the numbers when making the decision.
Love this Rob, I am going for the transient lifestyle within the next couple of years. When I tell people that I’m selling my lovely little cottage to live in AirBnB’s and rentals people think I’m mad.
Thanks for all of your articles, they give me the confidence that my personal choices are not wrong, even when many others think they are.
Thanks Neil! I find it reassuring when I find other people doing similarly “weird” things to me (clearly I’m not as much as a non-conformist as I like to think), so glad to have helped in a similar way!
Great read Rob, I just started renting for some of the reasons you have stated. Thanks for bringing even more reasons to my attention and giving me the confidence in the decisions I make! 👍
Thanks for the comment Jack! There are good arguments on both sides, but I feel that ownership gets pushed more widely so I’m glad to provide a bit of balance.
Wow. I’ve never looked at renting this way. I didn’t consider the possibility of saving the mortgage money elsewhere. It would work for stock market / index funds but not so sure about property because mortgage lenders typically want to see you owning your own home before considering you for BTL mortgages.
This is a highly annoying aspect of mortgages for sure. It’s possible to get BTL mortgages without being a homeowner but the product range is far more restricted.
Hey Rob! Very interesting view! Emotionally completely agree, but by any chance you can share some calculations which shows benefits of renting over buying?
Myself I just found that numbers are so much better from ownership. I am paying repayment mortgage of £1600 (where interest is £800), where renting it would cost £2100. Adding all costs of ownerships, it seems like more or less breaking even. But the largest benefit of it is that I own with mortgage, which makes this as leveraged investment.
Also, realistically I’d love to live in a place where I live, but renting for £2100 would be too much for me, where is mortgage it’s very much affordable.
Thanks Ivan! There are a lot of rent v buy calculators online, and it’s going to vary case by case as I said in the article. You may well be financially better off by owning in your case. My points are just that (1) it’s not as cut and dried as people generally think it is for some of the factors I’ve mentioned, and (2) when it comes to something as emotionally important as where you live, you shouldn’t be driven purely by the financials anyway.
For example, you can get more leverage on a personal mortgage than a buy-to-let one, so financially I’m tempted to buy a home so I can get my hands on as much of that cheap and depreciating debt as possible! But for lifestyle reasons I just don’t want to.
Hi Rob – just finished your book and joined Property Hub, and was intrigued to see your personal blog. This was one of the first posts I read and it is an interesting one.
I rented through my twenties and into my early thirties before marrying someone who already owned their home, which she got through Thatcher’s infamous Right To Buy scheme. The equity from that house enabled us to buy a large family home which we would likely never have otherwise afforded.
I’m since divorced, although still in the same home and about to start on my property investing journey – and I can honestly say I’d never have had that chance if I hadn’t been lucky enough to get on the property ladder.
The home I bought in 2002 has averaged about 5.65% appreciation per year for 20 years leaving me a significant pot of equity to invest. Of course, as you rightly say, I might have put that money into savings – but I wouldn’t have made any where near that much in interest. Arguably property outpaces pretty much all other investment classes over the long term, doesn’t it? And being honest – I’ve never been good at saving, life is short and I’ve always had expensive hobbies! 🙂
There are also less tangible factors – as you say, the emotive side of things. While renting I never felt “at home”. Of course, if you always lived in rented accommodation perhaps you wouldn’t know the difference, but my parents bought our family home when I was young. I also wasn’t able to have pets in any of the rental properties I was in. Of course, some landlords do allow pets, but since being a homeowner I’ve had the freedom to have quite the menagerie over the years – currently consisting of a german shepherd dog and three cats – which very few landlords would be comfortable with. While the new tenancy agreements “encourage” landlords not to ban pets I’m not sure this has really changed behaviour, and whether the legal reforms discussed around this will ever pass into law remains to be seen.
Also – when I look at my location – rental prices have skyrocketed – my mortgage is almost 1/2 what I’d pay in rent for a similar-sized property within 5 miles.
So while I would agree that it’s not as cut and dried as just assuming that getting on the property ladder is always the best option I certainly see more pros than cons. I definitely can’t see myself ever going back to renting.
Of course, as someone about to jump into the world of property investing, I certainly hope more people agree with you than me! More tenants is only good for us! 😉
Thanks for the detailed comment Ken! Funnily enough an investment in a global tracker fund would have beaten your 5.65% per year since 2002 (link) but the killer factor is you leveraged your home purchase so would’ve come out way ahead as a result. Also a repayment mortgage is effectively a forced savings plan so if you would have spent the money rather than investing it it’s helped you out there too!
Ultimately for me the emotional factors are far more important than the financial when it comes to your own home, which is why there’s no “right” answer because everyone has different preferences.