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Copyright © 2006 riceNpeas

To own, or not to own? That is the question. An examination of the ins and outs of making one of life's biggest monetary investments.

Can you remember the day the council gave you your first flat?  Oh joy, oh blessed day!  The carpets were musty, the curtains drab, a grotty kitchen greeted you, the toilet was in dire need of Harpic, but it was yours!  You know what I’m talking about.  And it’s more than just having a shelter.  It’s about something deeper, something more along the lines of belonging, something belonging to you.  A home.  Somewhere to feel safe. Somewhere for you, your family and friends to enjoy being.  A home is everyone’s passion. 

Here, in Britain, there is still some concept of social housing, where the government provides homes for those fitting its criteria.  Then, for those who don’t, there is the private rental market.  And for those with the means, the option to buy.

The foregone conclusion of growing up and leaving home and walking into your own council flat is becoming less of a reality for Britain’s youth.  So blessed are those that manage it!  The rents are reasonable, and any repairs will be taken care of, at no expense to oneself.  This being the case with all rented accommodation, why would anyone choose to buy?  This sounds like a dream. 

But everything has its flip-side.  If you’re an animal lover, I hope you’re only turned on by fish, caged birds or small mammals.  Those of you who like the more boisterous climbing cats, or the more vivacious barking dogs, may have a problem.  You might find yourself, at the mercy of your neighbours, seeking permission to harbour your furry friend, or making a choice to keep your pet-love quiet.

The years go by and you’ve experienced several promotions at work.  Or maybe you’ve just managed to get yourself better jobs as you’ve become older, wiser and more experienced.  You’re doing okay.  You can even look around and see how much money you’ve saved, as you watch and listen to your home-owning friends cry about interest rate rises, buildings insurance and that bloody boiler that's broken down again!

You start to look at your kitchen with new enlightened eyes.  The lick of paint, that once transformed it from grotty to great, has lost its glow.  Merely redecorating seems an inadequate solution, and you now want the fitted kitchen of your brochured dreams.  Even your housing trust doesn’t know when it’s going to get funding for its decent homes programme. 

So, again, you’re faced with the dilemma; do you seek the landlord’s permission, hope he’ll turn a blind eye, or just try to keep the works quiet?  And then there’s the issue of, what if you move?  Even after having paid all that money, it would be tacky to try and dismantle the kitchen and take it with you.  You’ll leave it behind, knowing you’ve got nothing for having given the trust, and the next tenant, a damn nice kitchen, perhaps having borrowed money for a loan that’s not quite repaid.  So as beneficial as it is, a social home has its limitations.

Even so, it has to be preferable to renting in the private market.  This is where those folk, some driven by avarice, have had the guts and found the money to buy properties.  If you don’t fit the council’s bill and have no money to buy, this is for you.  But no manner of hard-luck story will get you the keys into one of these. You’ll first need to hand over a deposit ranging from hundreds of pounds to a couple thousand.  So if you don’t have it, put your suitcase back on top of your wardrobe, the spare bedding and curtains back in your mum’s ottoman, and stop reading now!  If you do, then this is another option.

As is the case with Tom, Dick or Daniella, who are renting from the council or any of the nation’s housing associations, the bit about the pets and the kitchen will still apply.  The good news is that you’re still not responsible for your own repairs.  The bad news is that the efficiency and professionalism, so necessary in this area, are not the certainty that it is with the council.  Your only guarantee is that you are at the mercy of your landlord, so will need to pray that he or she is good-natured and governed by a sense of integrity.  But tainted as it is with drawbacks, not being responsible for repairs is always a saving grace.

However, there is another rental benefit that is conspicuous by its absence in the private market: relatively cheap rents.  These are not often reflected here.  Real life is not like a game of monopoly, and the landlords aren’t stupid!  If you own several properties, you cannot live in them all at once, yet they must all be paid for all at once.  So who pays the mortgage? The tenants.  Clever, isn’t it.  The landlord has the deeds, will benefit from any value attributed to the property, but you actually pay the mortgage.  And because they’ll charge you more than the actual monthly mortgage, you’ll give them some extra change to fund whatever it is your landlord’s heart desires! And if your landlord decides to sell, you have got to move, ready or not.

It’s also true that where councils will turn a blind eye, private landlords won’t and don’t.  Not having to tend to the thousands of homes that comprise the nation’s streets and housing estates, private landlords sometimes make the time to spot check their properties: albeit under a different pretext, if necessary.  So try your best not to let your kids wreck the carpets, or any of the other fittings.  You’ll also have a real job keeping that disallowed dog quiet, or hiding the newly fitted kitchen that replaced his or her grotty one. Pranks like these might cost you your deposit, and anyway, why on earth would you want to do their job for them?

It might seem like the private market is only for those who can’t do better, but it has its place, and is not all bad.  You’re probably more likely to get a garden: a bonus, particularly for Londoners for whom balconies and window boxes are often their most realistic hope.  A private flat is also a great stop-gap for some, especially if utility bills are included in the rent.  This perk offers a real opportunity to save some money, and if the place is fully-furnished, you’re laughing!  Moving on, when it’s time, is much easier, so it’s perfect for travellers, business people, or even fugitives – those looking for a type of accommodation to which they don’t have to commit. 

It’s also true that if you’re a tenant with gumption, there’s scope to sublet the property that you, yourself are renting.  You might decide to shack up with a partner, or manage to get a footing on the property ladder, and not return your flat or house to the council.  Like a private landlord, you could charge substantially, pay the council its cheap rent, and make huge savings for yourself.  If you’re caught, however, you will pay dearly, perhaps even with your freedom.  Your choice!

As misguided as it might be, that kind of entrepreneurship brings us nicely onto the option of buying your own home.  There was a time when this was only viable for the most affluent amongst us.  And, indeed, it can still be perceived as a symbol of potential wealth, if not actual.  With more people stepping onto the property ladder, the bricks that once fortified the barriers between social classes are beginning to crumble as more decide to go for gold.

The housing boom of the 80s and earlier 90s, led to soaring prices and today’s buoyant property market: the most lucrative that Britain has ever seen.  Everyone wants a piece of it!   In principle, buying a house seems like a passport to personal freedom.  You go out to a location of your choice, find a home of your choice, and buy it.  You can eradicate the noisy neighbour, and the pain upstairs that keeps letting the bath overflow and flooding you.  Forget fish!  You can have a dog, six cats, or a monkey.  You’ll leave behind the balcony or window box for that south-facing garden, and take your dream kitchen straight out of the brochure, without consultation.  You can even sublet a room, or the whole house, and make yourself a lot of extra money. 

Your credit rating will go through the roof, and you’ll achieve a sense of security yet unknown.  You’ll know what you’re working for, so arduous though it may be, your daily hours on the treadmill will begin to make more sense.  You’ll have something to borrow on, and something to leave your children when you’re no longer here.  This is an investment that grows in value as you sleep in your bed, and the more home improvements you undertake, the more your home will be worth.  So this time, replacing the grotty kitchen will actually add money to your home.  And if you’re fortunate enough to buy more than one home, you can literally use rents as your income, without doing a day’s work.  Let’s not bother to go into the prospects if you sell one of your properties!

This sounds like a dream.  And indeed, it is, and for many it will remain just that, as the price for fulfilling it is very, very costly!  Unless you can find one yourself, your first payment will probably be to a broker who can ensure you have a lender.  The lender will then want to know what deposit you can offer.  But before you boast about your life savings, remember to take some out for the estate agent, your solicitors and the Stamp Duty.  Leaseholds tend to be cheaper than freeholds, but make sure you can afford to pay service charges on top of your monthly mortgage repayments.  Plus, charges for communal improvements can drop like a bomb when you’re least prepared.  Also make sure you’re ready to fork out for the leaking roof, or that boiler, whenever it feels like resting again.  On top of your contents insurance, you’ll have to pay buildings insurance, and gain planning permission for some of those big ideas you dreamt up as a mere tenant.

Getting on that property ladder is no easy feat, and many of us are priced out before we even start considering buying as an option.  In any capitalist society, where wealth only has meaning if there is poverty, we have to wonder if the government is only feigning compassion as it flaunts its incentive schemes: equity loans, for key workers (teachers, nurses, etc.), shared ownership and the right-to-buy.  Key workers have got to repay the loan, which was their deposit, when they sell.  Shared owners pay a sometimes crippling part rent, part mortgage for just a percentage of their property.  Right-to-buy clients mostly benefit from an automatic deposit, which has dwindled to a mere £16,000 in recent years.  This is what you get whether you’ve been paying rent for three years or twenty, and it constitutes a mere fraction of a good deposit on a family home in London.  There are many council tenants, qualifying for the right-to-buy, who still cannot find a footing on the property ladder, because their houses are valued too highly.  Now, that’s a shame!

So is it more profitable to rent or to buy?  Simon Munton of the Daily Reckoning, informs us that our friends, across the English Channel, think the British obsession with buying property is laughable!  An acquaintance of his remarked, “the fact that you spend the best years of your lives with a financial noose around your neck is a great source of amusement to us Dutch.  Just rent!  Don’t be so hung up about owning…It’s still somewhere to live…and you’re free to come and go as you choose.” 

And it’s not just the Dutch, apparently.  By and large, buying is not the done thing on the continent.  In their support, Munton also highlights predictions made by Abbey, a major lender who produces a ‘Rent Vs Buy’ report every year.  Its report this year favours renters: “…in Wales, renters are already £27,000 better off over a typical 25-year mortgage period than buyers.  In Greater London, they report that tenants are £8,188 better off than homeowners over the same period!”

So decide what you will.  Whatever your thoughts on Abbey and the Continentals, there is something that cuts across all boundaries, cultures, races, means, ages and abilities; if nothing else, we all have dreams.  And, even today, for some, having a home is sadly one of those dreams.  So the only outright truth here is that we are all entitled to a home.  Whether you rent it or buy it merely depends on your personal dreams; whichever choice will open the doors that will make them a reality.

1st September 2006

FACE OFF: Rent vs. Mortgage
By Lawna Elayn Tapper