Is it mad to consider renting over owning?

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DP & I have 5 DCs between us 12yo -15yo. They are all with us EOW and some of the time during school holidays and mine are with us 50/50. We live in a 4 bed house (shared ownership, we own 50%) where the 4th bedroom is a tiny box room & 3 boys have to share the biggest room. It’s not really tenable any more.

We live in one of the most expensive areas outside London & to afford a bigger house we would have to take on a terrifying mortgage that makes me feel ill just thinking about it. However our ideal property has come up for rent for significantly less than the mortgage payments would be on an equivalent property.

Is it totally mad to move from our own home into rented? We’d have to sell as we can’t sublet. It just seems so counter-intuitive but our quality of life would be vastly improved.

I agree that becoming a landlord isn’t something anyone should do lightly.

Hi OP,
Something I don't think anyone has mentioned in the "buy a rental idea" is tax.

You would pay tax on rental income after allowed deductions at your usual rate - so usually 20 or 40% assuming you are working and have used up your nil band.

So, for example, if you owned a property outright and received £600 rent and imagine £100 each month on average is spent on insurance, gas checks, repairs, maintenance and voids. The £500 remaining would be taxed and you would get to keep £400 or £300 depending on your tax rate (declared annually on your tax return).

If you buy a rental with a mortgage and are a higher rate tax payer you can't deduct mortgage interest in full (they get a 20% tax credit so their mortgage interest is effectively taxed at 20%). So if you are a higher rate tax payer you are not only taxed on your "profit" but on your mortgage interest expense too. It is possible as a higher rate tax payer to have a tax bill for a loss.

To decide if you will be a higher rate tax payer you have to add your rental receipts to your salary and other taxable income so even if you are not a higher rate tax payer now depending on your income and amount of rent received you could become one.

Then there is capital gains tax when you want to sell the property to buy your own. The gain in value between buying and selling is subject to capital gains tax less your allowance (because the property was rented out and not your home). The capital gains annual exempt allowance is reducing from 12 to 3k.

I agree you are better off staying where you are unless you can afford to buy a bigger property. If you do buy again make sure your solicitor protects your existing equity for you in the new property if it is held jointly. As you and your partner have your own children you might want to hold any new joint property as "tenants in common" rather than joint tenants so you can pass your share to your children on death rather than it passing automatically to each other.

The posters that talk about your own security as the homeowner in the relationship make a good point. If you stay put in 15/20 years time (depending on your mortgage length) you will own your own 4 bed home outright - and continue to own it if your relationship has broken down. If you sell up and rent with your partner in years to come you might own find your savings have ebbed away and that you can't afford to buy/can't get the length of mortgage term you need.

Sorry just re-read you OP - you will own your 50%. But you have good security of tenure also and can staircase to own more if you want usually.

I wouldn't partly because of security of tenure. And partly because you will be paying out for ever even after you retire.

Thanks everyone, we’re staying put for the time being.