In the UK, one needs to pay a council tax regardless of whether you rent or own a house. And unlike the US, there is no prohibitive property tax when you own a house. So, does that mean the only financially smart thing to do is buy a house in the UK regardless of how long one plans to be in the country? Are there purely financial counter-arguments to buying a house in the UK?
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1Curious as to what difference you see between US property tax and UK council tax. The occupant usually still ends up paying it, if not directly then indirectly thru higher rent (i.e. landlords in the US will typically ensure the rent rate they charge is sufficient to cover all of their expenses, including the property tax).– CactusCakeCommented Mar 9, 2018 at 14:16
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1While the tag says UK, note that the situation in Northern Ireland is slightly different. There is no council tax, but instead there is 'rates'. Usually a tenant is not liable to pay them, although they may end up paying them indirectly through higher rent as @CactusCake says.– ConradCommented Mar 9, 2018 at 19:57
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2 Answers
Transaction costs mean that it's not sensible to buy a house for a short period. You may have to pay stamp duty on purchasing the house (goes as high as 15% marginal rate depending on a lot of things, but most people pay a lot less than that, and most first-time buyers now pay nothing), you will probably need to pay an estate agent to sell it (typically 1% of the sale price + VAT), and you'll almost certainly need to pay legal fees for both purchase and sale (a few hundred pounds a time).
answered Mar 9, 2018 at 14:12
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Thanks, this makes sense! Assuming that a first-time buyer does not have a stamp duty and £300k house appreciates in value by 1% in a span of say 3 years, I think it is still sort of a break-even scenario. Commented Mar 9, 2018 at 14:26
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@SundarVenkataraman You could earn 1% over 3 years even in a chequing account, let alone investments... Commented Mar 9, 2018 at 15:18
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3If you start assuming that the real estate will appreciate by x% then, yes, it's a no brainier in that you're acting without your brain. What if we assume the asset will instead depreciate by x% per year? Now renting becomes a no brainier. Commented Mar 9, 2018 at 15:35
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1@GlenPierce: in certain parts of the UK, that's a possibility. In other parts (especially the south of England), depreciation is currently considered so unlikely as to not even be discussed. Of course, the bubble could burst tomorrow...or not... Commented Mar 10, 2018 at 20:00
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Another cost: if you're the owner, you're responsible for paying for anything that breaks, as well as getting the property up to a standard that you're willing to live in. Commented Mar 10, 2018 at 20:02
The other answer has mentioned transaction fees that you must factor in. They are fairly predictable.
Also, don't forget to factor in other things such as: mortgage interest and/or opportunity cost of tying up your money, buildings insurance, cost of furniture...
There are also uncertain risks to buying a house, particularly for a short time:
- Purchasing a property can take considerable time, and fall through at the last minute. It will be particularly hard if being done remotely.
- Finding a buyer may not be quick when you want to leave. Especially if you have already left the country. You may have to reduce the price considerably to get your money out.
- You are also liable for property maintenance, boiler breakdown, burst pipes, flooding, subsidence.
However, all things considered, if you can afford it it is likely (in my experience) to be the better financial option. But certainly not a no brainer.
answered Mar 9, 2018 at 15:48
