Renting vs Home Ownership in London – The Big Struggle
Published 10 August 2010
Today, the Royal Institute of Chartered Surveyors (RICS) released their monthly survey on house prices. The RICS report, along with those from the Land Registry and the two mortgage providers Nationwide and Halifax, are always eagerly awaited by it seems everyone, with each month’s new figures dissected, discussed, commentated, and bandied around by politicians.
As someone who didn’t grow up in London or even the UK, this whole obsession with house prices seem to be bordering on the schizophrenic, with the constant media frenzy about whether prices are going up or down, or stuck in sideways limbo. As someone renting at the moment and never having bought before, I have been considering purchasing a property of my own, and so still have both sides of the renting vs house-ownership argument in my head.
Renting is for some reason seen as distinctly second-rate in this country compared to our European neighbours, where they are happy to rent their homes for life. Here in the UK, there’s this obsession where you have to try to get on the property ladder, and own a bit of your own land. This led to a massive chase for properties at the height of the market in 2007, where sometimes buyers would put in offers minutes into their first inspection of the house. Things have changed since then, but you can still see the mania to get on the housing ladder by the amount of shared ownership schemes available. These are government programs (e.g. part buy part rent) where you can buy a percentage of a property, and pay rent on the remainder. Before, we had the dangerous situation of a house-buyer only having to put down a 10% cash deposit and taking on a massive 90% mortgage. Now we have house-buyers buying only 25% of the property in shared ownership, putting down a 10% deposit on that amount; which means that what you are buying is really only 2.5% of the house, and paying rent and mortgage interest on the rest of it!
But being your own landlord does have its own advantages. For example, there’s the stability; as long as you keep up with the mortgage, you can stay in your house or flat for as long as you like. Whereas in renting, you’re at the mercy of the landlord kicking you out if they want to sell. When renting, you can’t hammer nails into the wall or even do basic cosmetic renovation, let alone a kitchen redesign or gutting the entire bathroom. If you’re like me and love wandering down the aisles of IKEA looking at the various home design combos, you know exactly what I mean.
In addition, home-ownership is often touted as an alternative to throwing away good money on rent, and being cost saving. This is only half true; instead of throwing money away in rent, typically 4% a year of the price of the house/apartment, you’re throwing it away in mortgage interest, which is also around 3-4% a year. And then you have to add up the ground rent, service charges (if you live in a flat), maintenance, furnishings, gas corgi checks, etc etc and the costs do add up. But on the other hand, if you fancy yourself a part-time builder and not afraid of doing a bit of DIY work, you can buy a house in need of modernisation, make improvements yourself over the years when you’re living there, and when you sell, you should hopefully be able to achieve a higher selling price because of your efforts.
Frankly, I am still undecided between house ownership and renting; both have its pros and cons, and after seeing lots of shoeboxes and awful houses, I’m not sure if the property market is sensibly priced. My girlfriend and I have a combined income of almost £75k and a deposit almost equal to that, yet the properties that we can afford at a stretch aren’t even up to scratch, are too small, or in a bad neighbourhood.
Is the property market still unrealistic? Will renting or house-ownership work best over the long term? And is the dream of a decent sized two bedroom property in good condition and in a nice area with good transport links out of reach even for a DINK (double income no kids) couple? Will house prices drop further in 2011 or the years ahead?