Would renting for five years make more sense than buying?

[Rentobrill]

We are selling our house. It's under offer and I'm really pleased with what we have been offered.

Our plan was to buy something slightly smaller in a nicer area. We'd only be there for 4-5 years though as after that we want to downsize properly and give some money to the kids for a deposit.

We've found somewhere to buy that we quite like- we would need to increase the mortgage a bit to buy it but it's affordable, and we'd pay that off when we downsize.

However, I've realised that we could probably do better by renting instead. We would save the stamp duty (which is a lot), we wouldn't have to borrow anything and could be completely debt free, and the net risk free return on our proceeds of sale would be enough to rent a house at least as nice as the one we were thinking of buying. So over 5 years we'd save the stamp duty plus 5 years' mortgage interest.

The sales market here (London) has been dropping and I think it has further to go, so it could potentially be better from that pov as well. However if things suddenly picked up we would be able to jump back in quickly if we wanted as we'd be cash buyers, and we'd only have to give two months' notice on the rental.

Am I missing something here? Any thoughts on this plan gratefully received- it feels odd to be thinking about renting after having owned for so long.

This makes sense to me for sure. If you are in London, SD is often hundreds of thousands. Money 'in the bank' can be enough to cover the rent, or a good proportion of rent too. As you say, falls in house prices are likely too.

It depends on the actual figures involved. I’m also in London and about to move for 5 years to nicer area, and then downsize. My rent would be about £25k a year which the interest on the equity from my house would just about cover. But it would be a 1 bed flat, compared to a 2 or 3 bed house which is what I would buy. Also in real terms the equity would be reducing because of inflation. Your figures may well be very different though, I don’t have a mortgage to consider and house is worth about £800k, not millions.

Brilliant idea. I am thinking of doing this. Also you’re ready to watch the market and move quickly when the perfect place pops up. And things can change in five years.
Ww rented in between family homes and it was fine. The interest covered most of the rent and we were able to secure a great house which was up for urgent sale. Not being in a chain is bliss. Plus you save so much on house maintenance.

The only issue I see is that your equity will drop by the rate of inflation, compared to house prices because you are using the interest to pay rent.

But as you say, if the market picks up again, you can act quickly to jump back in.

I'd find houses of the type you want to buy in 5 years, and keep a close eye on those specific prices.

If you can invest the proceeds of your sale into a high yielding account then yes pls rent. The stamp duty costs is crazy

If stamp duty is significant, it does sound like a good idea and you'll earn interest on savings, rather than pay it on a mortgage. You'll also save because you won't have to pay for things like buildings insurance, boiler servicing or property maintenance. Plus as you'll be chain free and not needing a mortgage, you'll be an attractive buyer when the time comes.

Main downside I see, as well as another unexpected housing boom, although prices would probably have to go up a lot of overtake what you're saving in stamp duty and mortgage interest, is whether you can find a secure rental in a suitable location or whether you end up having to move, possibly multiple times and how disruptive that would be.

After all, the insecurity and cost of rentals in this country is probably why a lot of people buy, many would rent if the system was better.

Thanks everyone, this is really helpful.

Stamp duty will be six figures so quite appealing not to have to pay it!

A lot of rental properties are poorly maintained. If you’re used to being a homeowner and having proper maintenance done this could be a shock.

I wouldn’t.

Surely five years worth of rent is dead money. If your rent was £1000 per month, that’s £60000 down the pan. Thats s alot of dosh (and I’m guessing the rent will be higher).

Also, the nice places where you want to live eventually, the house prices are likely to increase still, albeit more slowly then now.

Not sure I would do this. What if you need to move from the rental property (landlord wants to sell)? Do you have pets- makes finding somewhere to rent harder? Can you stay where you are for 5 years and only move once?

OP said that stamp duty alone would be six figures. That is money down the drain. Never mind mortgage interest.

I'd definitely rent in this situation.