The owner occupier?

October 04

For those of us born since the second world war, the typical model has been for us to aspire to own our own home. However, we sometimes forget that this is not a global phenomenon, nor a historical one. While the aspiration of home ownership came after the war, many, many people did not actually buy their own houses until the Thatcher years, and the great privitisation of council houses. Whatever one thinks of Mrs Thatcher, she doubtless presided over the UK at a period of great social change.

The idea, however, that we have to own our own homes may not be something that stands up to close scrutiny. For many people, it is true that home ownership would be the long-term cost-effective way to live, but not for everyone. While the recent housing boom has meant that the vast majority of people who did manage to buy over the last 5-10 years have done well, the equations change if you assume a flat market going forward for the next few years.

Here are a few groups of people who may be better off renting:

Firstly, those who are only going to be in an area for 6-12. The claim that by renting you are paying the mortgage of your land- lord is true, but by buying you are paying for the Mondeo of your estate agent, and the BMW of your solicitor. If you are only planning to live somewhere for 6-12 months, then paying the equivalent of two months rent in stamp duty, one months in legal costs, and three months in estate agency commission adds up to big costs quite apart from the mortgage.

Secondly, those who are expecting their income to rise sharply over the next few years. The same arguments apply. In the past, it was sensible to buy, let your home appreciate, and then sell to fund a deposit. Now, if the home stays at the same value, then there is no extra deposit building up, and the fees + rent vs. mortgage costs sums need careful looking at.

Thirdly, those with uncertain jobs. (Remember that I speak as someone who was made redundant twice in the last 5 years.) The advantage of renting, particularly on short-term contracts, is that it is easy to pack up, and move. In an ideal world, this is a move to a new town, where a new job starts, but if financial problems run on for longer, then moving back with the parents, at any age, is something that more and more people have to do. When you are facing financial problems, being able to avoid the uncertainty of a house sale, when a mortgage is eating you alive, can be a great comfort.

Renting used to be the choice of either the very high-end, or the low-end. It used to either signify that you were a high-powered international executive, parachuted into some overseas operation to sort things out, or that you couldn't afford to get onto the property ladder. Now it has become the social norm for the young professional... and the young professionals I know do not see it as in any way a stigma, but a lifestyle choice.

All this bodes well for the future supply of tenants!

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