Saturday, 13 February 2016

Renting isn't all bad


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Some friends of mine have just declared bankruptcy. She started their online only business eight years ago. As it grew he quit his job and joined her. Working from home they had a successful business. Successful enough to pay two salaries and all the costs of their home, cars, bills etc.
Until recently.Where an expansion plan overstretched them. The resulting losses and disappointments and personal illness caused the pair to decide to just pack it in.

And this is where the rental society gain.

They have no house to repossess. They only have, with the business, their stock assets and some small personal funds. A business running homeowner of their size would likely have personal guarantees to the bank, secured on their property.

I saw the couple yesterday and they said they are moving in two weeks time. I was stunned. Two weeks? Just move? In two weeks? But, of course they can. 
They have nothing to sell. They are in no chain. All they need is to find a new home, give notice, and move.

And they have no heavy equipment to move. No fridge. No freezer. No TV.  which also means that unlike the homeowner,they have never bought any of these items. Never had to replace them. 
No home insurance either.
They have never had to have a discussion about weather to put on a loft extension or a conservatory, to fit in their expanding family. And all the horrendous cost and dislocation that that causes.  They just move down the road. They have never had that worrying feeling as one's spouse begins to stare at walls and then leave magazines around the house. Glossy pages featuring tiny pots of paints that cost more than tankers of oil. 
Or worse. That conversation that begins with "the kitchen drawer is stuck again." Goes onto "I saw Jennifer yesterday..Her new kitchen has a boiling tap and a built in igloo" and and ends up with a remortgage.
This particular couple had one child when I first met them. They now have five. And have moved house six times during the time I have moved none.

Interest rates are of supreme indifference to them. Back in the pre-crash days the interest rate announcement had the biggest effect on disposable income of homeowners. Its only very recently that it hasn't moved for any length of time.

They have not had repair,replacement or restoration bills for exterior and interior works. No new gate or fence panels. No new shed. Never owned a lawnmower. all the myriad of small costs involved with owning anything, from a replacement shower head to a whole new bathroom, pass them by.

They have never had to engage solicitors, at considerable expense, to organise the transfer of them from place A to place B in accordance with the law. Nor the local authorities for the same. Never had a young person telling them that their fee for advertising and marketing their existing home for them would be between 1% and 4% of its value, Some £8,000 average for the UK.
And they have never had to pay the chancellor 5% of the asking price of their most valuable asset, that is also their pension, just because they wanted to relocate.

So,when we read about kids being unable to get on the property ladder, that may have some upsides for them too.



25 comments:

Sackerson said...

http://charleshughsmith.blogspot.co.uk/2016/02/if-you-want-to-be-wealthy-dont-focus-on.html

... and as a friend points out, there's no house for the State to grab to pay for your elder abuse in a care home; you can find ways to leave your successful business to your children.

A stat I heard years ago was that 80% of new businesses fail. But that's not the same as 80% of business people.

Steven_L said...

I'm not sure I follow. You say 'they' went bankrupt, as opposed to their limited company did? So they go back to zero (minus any assets they hide, bars of gold etc - which homeowners can also do) just like a homeowner would. What's the difference other than not having a house repossessed for your creditors? Either way, you end up with zero (and probably an income payments order).

I agree renting removes a lot of the costs associated with homeownership though. This is especially so where a group of working adults can house-share. But the difficulty is when someone wants to start a family. Unless you are renting from the state it must be an utter nightmare.

Nick Drew said...

some related reading from this weekend's Graun

http://www.theguardian.com/society/2016/feb/13/under-35s-in-the-uk-face-becoming-permanent-renters-warns-thinktank

Bill Quango MP said...

SL - I take your point. Their value becomes nil either way. But the homeowner believes they are 'saving' in the investment within their property. If they lose their business, what they owe the banks, the banks will seize as first creditor from their home.
SMEs tend to have no loan protection under limited company status. Banks require personal guarantees secured on property. So 'your home is at risk' applies. The point I'm making is that being a homeowner does you no favours in this situation.

Sackerson: These aren't bad business people. They are 'hippie business' people. Not traditional types. But since 2000 there have been thousands upon thousands of these 'new business'.
Any business that has run for over 5 years has done well.


There is a follow up to this story coming. About incomes and work loads.

ND: I shall have a peek.

Bill Quango MP said...

Before someone points it out,I do understand the impermanence of renting. The inability to make somewhere suit your tastes. The lack of security.
But there are advantages too. If I had to represent a new constituency up north say, The costs of moving and buying permanently would far exceed several years worth of rental payments.

Sackerson said...

BQ: I didn't at all mean to imply that your friends were bad business people; just that that tends to be the fate of most new businesses. I said this to some bank people at aeminar and asked why knowing this they encouraged newbies to go for it, made them put their houses in the pot and forced them to load up with insurances and pensions as a condition of getting finance. They explained that I was a communist; you could have knocked me down with a feather. At last, I know who my people are.

Bill Quango MP said...

Sackerson: Thanks. I knew just what you meant, and I agree with you. It was my response to you that was poorly worded. i should have just echoed that truism that most small business fail very quickly. Most within one year. I know of two that have closed within six months. Set up by people with their redundancy money.

That's a real shame. To lose that 'windfall' so quickly.

Electro-Kevin said...

Hey !

Let's all sell up and become renters !

The greatest disadvantages, according to my renter friends:

- insecure tenancy

- money down the drain (never ever rent free)

- unable to make a home one's own

A great disadvantage to the Conservative party is that home owners make great Conservatives. Margaret Thatcher knew this.

I would agree with the post if rents were cheap but they aren't. Though they are cheap relative to historic house values they still cost far more than a mortgage would in a lot of cases. This is a common complaint of people who can't get mortgages. That the rent they're already paying far exceeds the mortgage that they would pay.

OT. Legend featuring Tom Hardy is a must see.

Electro-Kevin said...

You pre-empted me, BQ. I hadn't read the thread before commenting.

Thud said...

EK, I enjoyed Legend as I do most Hardy stuff,I was surprised it was a comedy though.

Steven_L said...

I'm sorry BQ, but your post kind kind of be summarised by saying ...

"your home may be repossessed if you do not keep up repayments on your mortgage or another loan secured on it"

... and your readership are the sort of folk that know this.

Charlie said...

As a serial renter and also an IT contractor I often take advantage of the rather temporary nature of my employment and living arrangements to bugger off around the world for months at a time. At the moment, I haven't worked since June, nor have I paid rent since August. However, I'd like to put down some roots. I'm tired of dealing with landlords - they really do deserve the bad press they get. But, does buying a place really offer the security touted in the ads?

I have enough savings to put down a 20% deposit on a "forever" family home in a nice bit of north London and the mortgage on it would be comparable to the rent on my previous, 1-bed flat. However, the purchasing costs are insane. £40-£50k stamp duty for a start. Conveyancing. Surveys. I just can't bring myself to liquidate my investments, which fund about two-thirds of my rent currently, and spunk three year's rent, plus a couple of hundred grand deposit, just to move into a house that I own. I'd be sh*tting myself about IR rises for the next 25 years. What's a thirty-something bloke to do? I guess I'll just have to deal with landlords for the foreseeable future, which is not going to be ideal when Mrs Charlie starts to produce little ones.

I do actually buy BQ's assessment that renting allows one to do some more creative things with one's assets, but that's not why most people do it. They're either priced out because they can't save enough to raise a deposit, put off buying in the current IR regime or don't fancy giving the treasury tens of thousands of already-taxed income. In a straight "would you rather own or rent?" question, most renters would say own.

Bill Quango MP said...

Charlie : You are right. because if you weren't, we'd all be renters on here.

My only point is the one you make. This idea that owning a home is cheaper than renting is only true if you aren't planning on moving for many, many, many years.
As the family got bigger, i moved four times. I had to borrow the chancellor's tax money, and the legal and estate agent costs from the mortgage company. An insane situation that was cause of much of the personal debt in the millennium years.

Roger said...

Seems to me that by keeping house prices insanely high the government is selling off the political family silver. Gradually all those potential Conservative voters will have no dog in the pro Green Belt electoral fight. As the renters get old they will have no assets to raid and their relatives no reason to keep them off the State.

As for having better and more creative uses for the money, that looks specious, starting a real business that is more than self employment has always been a pretty chancy affair even for capable people. Then the UK is not a particularly good place for new startups - other than rental agencies and property development. Worse still, as the talented young get older they also get bored with their old profession and want to slow down. Cameron and Corbyn's successors will reap the benefit and the rentiers will be ripe for plucking.

Nick Drew said...

@ Roger, Gradually all those potential Conservative voters will have no dog in the pro Green Belt electoral fight. As the renters get old they will have no assets to raid and their relatives no reason to keep them off the State

excellent points - some of the very reasons why conservatives are in favour of property-owning for all

the more people that have a committed stake, the better society functions

real-estate being static, you have to stick with your neighbours, stand, & fight

andrew said...


the key thing for me is optionality

I - and most other posters here - can decide whether to rent or not.

Most people under 30 (40 in London) do not get this choice

Making a large, definable group of people second class citizens - and at the moment as house prices increase the finish line to buying a house gets further away - in something important like this never ends well.

Electro-Kevin said...

Charlie

If your rent is above a factor of 16 after this calculation:

property value/yearly rent

then your landlord is subsidising you to live there as local wages cannot support the price that a new buyer would pay. There is external money coming into that property market.

If local wages could support the price of the house then more of them would be in owner occupied hands; more affordable, obviously.

BQ's argument about moving 4x. They reckon 8 years of staying put to make moving costs worthwile over renting.

The renter suffers some of these tax/solicitor/mortgage/estate agent costs anyway as they are reflected in higher rents across the market.

James Higham said...

Renting keeps one footloose, that's about all.

Steven_L said...

some of the very reasons why conservatives are in favour of property-owning for all the more people that have a committed stake, the better society functions real-estate being static, you have to stick with your neighbours, stand, & fight (ND)

I'm sorry but I think you're talking absolute cobblers ND, real uber-stereotypical, retired army officer, Telegraph-reading, home counties tory grassroots canvassing, 24 carat gold cobblers.

For a start, conservatives reversed all the post war housing policies that helped the UK from 50-odd per cent renting privately to only 10% and the vast majority being owner occupiers. Now the policies are reversed, the so has the trend, it is no coincidence.

Next, people in secure social housing tenure have just as much interest in getting on with their neighbours, living in a nice place etc. It's only the short term renters on their 6 month shorthand assured tenancies - brought in by ??? - that have no reason to give a stuff about upkeep.

Last, but by no means least, you assert society functions better as everyone has 'committed a stake'. If you were a financial illiterate I could forgive this. But you know more about finance than anyone I've ever met bar perhaps one hedge fund manager I bumped into on a train. So you know fine well that 'society' has effectively been encouraged to take a massive, collective short sterling / short sterling interest rates / long land prices bet. And being the clever chap you are you know that our political masters have to pander to this bet over and above nigh on everything else.

And you choose to call this society functioning better. Well once the lamb is in the oven I'm going to have to find time away from the cricket to make an example of you over at MW's place. He's been pestering me to post something, and I've been struggling to think of anything. But you've gone and solved that little dilemma. We'll see what more enlightened bloggers have to say.

Happy Valentines Day, I hope everyone got lots of cards.

Mark Wadsworth said...

@ Steven_L, 1.14 pm:

SL, good work, the only bit which is slightly misleading is this:

"conservatives reversed all the post war housing policies that helped the UK from 50-odd per cent renting privately to only 10% and the vast majority being owner occupiers. Now the policies are reversed, the so has the trend, it is no coincidence.

You have to be fair and include the small c conservatives i.e. Home-Owner-Ists Blair-Brown in the Labour Party 1997 - 2010 who went full on into dismantling the post-war consensus and pushing house prices increases and encouraging buy-to-let.

You can't blame it all on Thatcher, she set the ball rolling but was not a full-on housing/credit bubble lunatic, and Camerosborne are merely continuing Blair-Brown's policies. Things like Help To Buy were started by Gordon Brown between 2008 and 2010.

L fairfax said...

@Bill Quango MP said...
"
Charlie : You are right. because if you weren't, we'd all be renters on here.

My only point is the one you make. This idea that owning a home is cheaper than renting is only true if you aren't planning on moving for many, many, many years.
As the family got bigger, i moved four times. I had to borrow the chancellor's tax money, and the legal and estate agent costs from the mortgage company. An insane situation that was cause of much of the personal debt in the millennium years."
Why should people have to pay tax to move? I don't mind paying more tax because I earn more than others, or because I fly more, or drink more alcohol etc. (There is a case for all of these taxes) or because I own a more expensive home.
But why because I move home more?

Electro-Kevin said...

L Fairfax - Because the value of housing is reflected in government performance.

Weekend Yachtsman said...

You've mentioned all the advantages of renting, but you haven't mentioned the biggest disadvantage: you have to be able to pay the rent for the rest of your life.

Whereas I don't anybody a penny, and don't plan to, for the rest of my life; and nobody can turn me out of my house (except the Wealth Tax weasels - don't get me started!).

I know which position I'd prefer to be in.

And not everybody who runs a business secures their finance against their own home. I certainly wouldn't.

Weekend Yachtsman said...

ARGH. "I don't OWE anybody a penny"

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