The Economics of Renting vs Buying
Until recently, one of the great unchallenged economic assumptions in the UK was that a person is better off paying a mortgage than paying rent. For those fortunate enough to have the choice, owning a home would seem to be the financially prudent option. However, a number of economists disagree. They argue that renting provides an unparalleled fiscal opportunity – especially for the young mobile labour force.
Generally speaking, during inflationary cycles of the economy the flow of wealth is favourable to owners – as house prices and wages increase faster than mortgage interest. During deflationary periods, house prices can fall dramatically – leaving homeowners in negative equity. Because the UK has been experiencing inflation since the early 1960s, two generations have grown up thinking of home ownership as a risk-free investment.
A Better Way to Save
Dr Isaac Tabner, Senior Lecturer in Finance at the University of Stirling, argues that renting is a better option for many people. Getting on the housing ladder at an early age – considered an aspiration for much of the last century – could actually decrease quality of life by tying the purchaser to an illiquid asset and restricting the chance to move quickly in search of job opportunities.
Furthermore, money not spent on estate agent, surveyor and solicitor fees (often running into thousands of pounds) could be invested in risk-free portfolios that yield a higher return than expected house price increases. Definitely something for the younger generation of renters to bear in mind.
Dr Tabner features in this short article made for BBC News, entitled: Could we all be better off renting?
At Pearl Lettings, we welcome all kinds of tenants: lifestyle renters, students, families and savers. Our mission is to supply everyone who needs it with high quality housing and a first-rate property management service.
If you are a responsible tenant looking for a well-maintained home to rent in Norwich or its surrounding areas, please get in touch. You can email us on firstname.lastname@example.org or call the office on 01603 980770.