Renting a house may not result in capital appreciation, but it can make life easier than buying a house. With falling house prices, is house rental a better option?
Renting a house is often perceived as wasteful, but there are a number of situations where property rental can be beneficial. Escalating house prices in recent years have made it impossible to get on the property ladder meaning that house rental is the only viable option.
Advantages of Renting a House
- Lower deposits. Those buying a house will normally need to raise 20% of the property value. However, those renting a house will normally only have to find 3 months rent;
- No repair costs. When renting a house, the landlord is legally responsible for any repairs and maintenance. Buying a house passes on this responsibility to the first-timer buyer;
- Falling property prices and negative equity. According to a survey by Nationwide, the average cost of a house has now fallen £29,000 to £153,048, representing a fall of 15.9% during 2008. Many new first-time buyers are currently struggling with negative equity;
- Easier to move. Whilst buying a house has its advantages, it is vastly easier to move when renting a house. During a recession, it can take many months to sell a house;
- No building insurance. Whilst those that rent a property are still responsible for the contents insurance, building insurance is paid for by the landlord;
- State benefits. Access to state benefits, in the event of losing a job, is vastly better for those renting a property than for a home owner.
Disadvantages of Renting a House
- Dead money. Only the landlord benefits from capital appreciation. As property prices double every nine years, on average, property rental can mean that a wonderful investment opportunity has been wasted;
- Notice by the landlord. If the landlord provides the required period of notice, the tenant will have to find somewhere else to live;
- Possible lack of energy efficiency. When the tenant is responsible for bills, not having quality wall and roof insulation can result in higher utility bills;
- Difficult to save for a house deposit. Trying to cover the cost of property rental along with other household bills can make it extremely hard to save for a house deposit for future first-time buyers;
- Bad landlords. Whilst there are laws in place to protect those that rent a property, bad landlords can make life very difficult for tenants. This could mean extremely long delays before getting problems satisfactorily resolved;
- Bad credit. Renting a house can be very difficult for those that have a history of bad credit. Letting agencies perform credit checks which can lead to applicants being rejected. Those that do have bad credit will probably only be able to rent a property directly from the landlord.
Renting a property is an excellent short term housing solution, especially during a recession or when moving area or job remains a possibility. However, those wishing to settle down would be well advised to consider buying a house to take advantage of capital appreciation.
Potential first-time buyers that found this article useful may also be interested in finding out about the different types of mortgages available, such as the tracker mortgage and the fixed rate mortgage.
The copyright of the article Renting a House - Pros and Cons in First Time Home Buyers is owned by Asa Ghaffar. Permission to republish Renting a House - Pros and Cons in print or online must be granted by the author in writing.
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