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Renting could be more financially sound then estimated
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
Interesting new research reveals that the financial benefits of renting a property as opposed to owning could have been underrated.
Financial researcher at the University of Stirling, Dr Isaac Tabner, believes the cost of renting includes expenses such as homeowners, such as property maintenance and insurance.
Hidden costs
Dr Tabner said just a simple comparison between rent and mortgage costs can overlook hidden fees, thus overestimate the financial benefits of owning a property as opposed to renting.
The research, published in the International Review of Financial Analysis, gives a detailed explanation of how costs of owning versus renting a property could be assessed. Tenants’ and owners’ personal circumstances and macro-economic conditions are also taken into account.
When reviewing transaction costs, rental yields, inflation and length of ownership, the study reveals that in periods of deflation or zero inflation, people who rent are usually better off financially than those owning outright.
Favourable
In addition, the report found when economic conditions return to be favourable, households could need to own their home for between five and ten years before the costs of rent they no longer pay are sufficient to compensate for buying transactions costs.
Of course, rising inflation could serve to favour homeowners.
Renting could be more financially sound then estimated
Continuing, 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.’[1]
‘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,’ he added.[1]
A full transcript of the research can be sourced here.
[1] https://www.lettingagenttoday.co.uk/breaking-news/2017/1/renting-may-be-financially-more-worthwhile-than-previously-thought
