Renting Instead Of Buying A Property In London
Why would someone possibly rent a property in a prime area of London instead of buying?
Buying a 1-bed to 3-bed property in London could turn into a long term investment if the home buyers didn’t plan on moving for 10, 20 or 30 years…
True!
Surely renting is just throwing money away?
In fact, in my opinion, this is not true at all.
Here’s some of the reasons why…
You get the opportunity to experience a range of areas:
Renting is so important before buying because it allows potential home buyers to experience an area, or indeed a range of areas, before committing to an area for at least the next few years.
I would always recommend including a break-clause into your rental agreement so that you are free to leave after, say, 6 months if you feel the desire to do so.
The cost
If you buy, say, a 3-bed London flat for £2,000,000 and above, it is not likely that property prices will shoot up rapidly over the course of the next 6 months.
Why is this important you might ask?
Well, let’s say that you have bought your dream 1-bed flat in the Strawberry Hill area of Twickenham (which is a hugely underrated area of Richmond Upon Thames) without having rented there before.
What then happens if it turns out that you actually aren’t keen on Strawberry Hill as an area. Or Mayfair. Or Hampstead. Or Harrow-on-the-Hill…
Then, you’ll want to sell your 1-bed property…
The likelihood of you even recouping your money back is unlikely with added costs and fees.
Saving on stamp duty
As it so happens, stamp duty is payable on rents that exceed £125,000 cumulatively.
However, for rental payments under this threshold, no stamp duty is to be paid.
A number of potential 1-bed, 2-bed or 3-bed London flat buyers are opting to rent in an area for at least 12 months and sometimes up to 3 years to either save on stamp duty and get a ‘feeling’ for an area or to simply pay far less stamp duty that they would have done if they were to purchase the same or a similar 1-bed 2-bed or 3-bed property.
Rental yields in some streets in Mayfair can be as low as 1.5%, meaning that renters pay far less to live in said property than they would have done if they had bought it.
Also, as a renter, the freeholder or landlord has to sort out the issues that arise, at no extra cost to you…
At the top 1% of the market, stamp duty costs can be very high…
This is especially if the property purchased is not their first home and a foreign buyer will need to pay an additional 2% SDLT surcharge that will apply to non-UK residents purchasing residential property in England and Northern Ireland as of 1 April 2021.
“It allows potential home buyers to experience an area.”
Freedom
Renting gives you a sense of freedom which buying a property does not give you.
Buying a new flat is one of the most exciting times that someone can go through…
It is a home that they can call their own and make their own…
It is a place to create memories and to have experiences in…
However, selling a flat, as well as buying a new property, are regularly ranked as the 3rd most stressful scenario that humans go through - third to death and divorce.
With renting that stress lessens hugely because you can literally pack up your bags (or get a delivery van if need be!) and move to a new rental property.
It really can be so much easier…
However, the cons of renting is that there will be various rules in place which stop you from making it your own.
Also, over the long term you obviously can’t take advantage of any capital appreciation which may occur if your next flat isn’t your ‘forever home.’
There really are lots of things to think about when you are deciding to buy your next flat and the possibility of renting, if only for a short while whilst you ‘feel out’ a new area should be high in on your list…
As an example, in London there are currently over 1,000 unique properties that are on the rental market for £10,000/ month or more.
There are also currently over 95 unique properties that are on the rental market for £40,000/ month or more.
Have you ever considered renting before buying if you are moving to a new area?