Is renting a property financially more worthwhile than previously thought?

An interesting piece of research caught our eye recently, stating that the financial benefits of renting a home rather than owning one may have been underrated.

A financial researcher at the University of Stirling, Dr Isaac Tabner, has said that the cost of renting includes many additional expenses incurred by home owners, such as building insurance and property maintenance. He says a simple comparison between rent and mortgage costs overlooks these additional hidden costs and can lead to an overestimate of the financial benefits of owning versus renting.

The new research, published in the International Review of Financial Analysis, provides a detailed explanation of how costs of renting versus buying a home can be compared. The research takes tenants’ and owners’ own personal circumstances and macro-economic conditions into account. In reviewing a number of factors, such as transaction costs, rental yields, opportunity costs, inflation and the length of time owning a home, the study also shows that – during periods of deflation or zero inflation – people who rent are typically better-off financially than those who own their home.

Tabner said: “It is often thought that buying a house makes more financial sense in the long run: however, renting is frequently more worthwhile than buying for financially-constrained households, as well as households likely to relocate within 10 years. As well as a reduced ability to recover transaction costs, households relocating within a few years face a higher risk that medium-term prices will move against them, thus reducing or eliminating their equity, while financially-constrained households face much higher mortgage costs.”

At Poole Townsend, we understand that each individual’s personal circumstances are different, so it’s best to come and talk to our mortgage advisers and sales and lettings experts to see what might be the best route for you. If you’re unsure about renting versus buying, please don’t hesitate to speak to a member of our friendly team - get in touch with us here.

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