Buying is not for everyone or every situation. Sometimes there are very good reasons not to buy a house, and where renting makes more sense. Here we explore six reasons why buying a house is a bad idea.
Were you surprised to find this negative article on house buying, on a website meant to help First Time Buyers? The reality is that while we would love to get more people into property they can truly call their own home, in many cases there are good reasons not to buy and it is much better to keep renting your home instead.
When is renting a better option than buying?
Here are the top 6 reasons why renting is better than buying:
- Location Flexibility – its quicker to move from a rental than it is to sell a property
- Requirements Flexibility – if your requirements change, you can move to a different property easily if you’re renting
- Upfront cost – there are a lot of upfront costs involved in buying a property
- Risk of high maintenance costs and capital expenditure – landlords pay for management fees, maintenance, works required, and more
- Opportunity Cost of Your Savings – your savings could grow faster through investment than in a property
- Flexibility of your savings – your savings could be used for emergencies or pay for other things
When you rent, you can usually end the tenancy with just one or two months notice (provided you are outside your initial fixed term). When you own, it might take months to sell – the average property needs at least 50+ days after listing to go under offer, and then there is the long and winding Road to Exchange and Completion.
For example, flexibility might be key for your career progression. You might be looking to move jobs soon, or have shaky security at your current job. If your new job requires you to move cities, you do not want to have to turn down a job offer just because you’re stuck in a property you own, that will take a long time to sell.
There are also many other reasons why you need location flexibility – if you are currently single but meet a new partner and want to move in together, to a location convenient for both of you. If you have children and need to move to a catchment area of a good school. If you are responsible for the care of an elderly parent or other relative, and need to move closer to them. These are often unexpected events in the future, but they do happen regularly and therefore you have to bear in mind this first reason not to buy a house and instead keep renting.
Similar to Location Flexibility above, renting allows you to switch properties easily if your housing needs change, for example if you now need two bedrooms instead of one, or an easily accessible ground floor flat instead of a fourth floor flat via stairs.
What if you or your partner decide to have a baby, and you need an extra bedroom? It is much less stressful when you are renting because you can find another rental place easily to suit your needs. As a homeowner, you might end up in a nightmare scenario of a looming birth, not having found a buyer, or worse having your chain collapse. Pregnancy is already a very stressful time, and adding the uncertainty and stress of upsizing to a bigger home just adds to the stress. This is a very good reason not to buy a house and keep renting instead.
When you rent, there should be minimal upfront costs. Estate agents are not allowed to charge tenant fees anymore at the start of tenancies. All you usually have to pay are the moving costs, which will be the same whether you are renting or buying.
When you buy a property, there are many upfront costs. Mortgage arrangement fees, conveyancing fees, property surveys, stamp duty, and so on. These are all sunk costs – the same whether you stay in your new property for a year, five years, or twenty years. If you’re confident you’re going to be staying put and not having to sell your home for a very long time, then these fees are insignificant when spread out across all those years. But if you need the flexibility to move, maybe in two or three years, then these costs could be prohibitive and sometimes add up to almost half a year of rental costs.
My recommendation is that, from a cost perspective, financially it only makes sense to purchase a property and to become a homeowner if you are planning to stay for a minimum of three years or longer before you sell.
Risk of high maintenance costs and capital expenditure
When you rent, the landlord is responsible for almost all maintenance. That’s right – if a leaky roof tile needs replacing, or your window develops a broken seal, the dimmer switch stops working, the wall paint is peeling from damp, or the grouting in your bath starts leaking…. it is the landlord’s responsibility to fix it. Both from a cost perspective, and also the hassle of the actual work to fix it!
This also extends to expensive works and capital expenditure. The boiler stops working and needs replacing? That could cost £2000 or more. If you are renting, the landlord has to pick up the whole bill. If you are a homeowner, that could be an expensive emergency loan if you do not have that much savings lying around.
If you are a homeowner, you have to find the money for all emergencies to pay for it. Water starts leaking through the roof? That could be very expensive scaffolding and a re-roofing work that needs to be done. It is not uncommon, for a small 2 or 3 bedroom Victorian house, to sometimes need to unexpectedly spend tens of thousands of pounds in a year to fix problems.
If you live in an apartment building, the management fee is paid for by the landlord if you are renting, and by yourself if you are the apartment owner. There have been horror stories of management fees going up and up and up year after year, in some cases increasing by more than 30% year-on-year. If you are a tenant, you do not pay for it directly, so are unaffected (well, the landlord might try to increase your rent though!). But if you are a homeowner, you have no choice but to pay it.
Therefore, when you rent you have very few unexpected liabilities from maintenance, capital expenditure, or management fees. But as a homeowner, you’re 100% liable for any costs that arise – and sometimes they can be quite a shock.
Opportunity Cost of Your Savings
When you buy a property, you have to put down “equity”, which is commonly referred to as a deposit. If the mortgage you are going after is an 85% LTV, then you are paying a 15% deposit. On a £200k property, that is £30k of cash you are having to sacrifice from your savings.
When that £30k is in the property, it earns zero interest every year, and makes or loses money if the property price goes up or down. If you decided to rent a home instead, you could put the money in a savings account and earn interest. If you were good at investing, you could put it into shares, bonds, or funds and make a higher return than you could putting it into a property. So by buying a property, you are giving up any other opportunities that you could have used that money for.
Flexibility of Your Savings
When your money is tied up in a property, you lose the flexibility to use it for any emergencies, say to fix a car, if you need it for any medical bills, or are unemployed for a prolonged period of time. If you don’t have any other form of savings, it is a very risky move to put all your cash and savings available as a deposit for a property, because then you have nothing to fall back on.
In addition, if you put all your savings and cash into a property, you are sacrificing other financial goals you might have in life – to buy a car, to go on an amazing holiday, to spend on further education to progress your career. If you rent instead, you can use your savings for these goals instead. This is often something that most first time buyers do not consider when buying their first home, but it is a good reason why not to buy a house and rent instead.
Read through all six reasons not to buy a property and rent instead? And still decided that buying a property is still the right decision for you? Then you’re on the right website! Check out our other Before You Start guides and tips, and then progress to our Financial Advice Guides for First Time Buyers.