We agree that it can be difficult to know whether you are better off renting or buying your own home. However, there are positives to both that you may not have considered and which may suit your lifestyle better. We’re going to explore the pros and cons to both owning or renting a home, so by the end you’ll be able to make a more informed decision about whether you should rent or buy.
This post is split into several sections:
As a nation, owning your own home is an aspiration that is hard-wired into our psyche and hails back from a dim and distant past when property ownership was the reserve of the aristocracy, considered the ultimate status symbol and seen as a way of climbing up the ‘class’ ladder.
In more recent years one of the defining moments that cemented property ownership as ‘the ultimate desire in the modern age’ occurred in 1975, when Margaret Thatcher declared her belief in a ‘property-owning democracy’ during her first speech as leader of the Conservative party. This speech set in motion the ability for council tenants to buy their own homes, at reduced prices and lead to schemes such as Right to Buy being introduced.
However, the aspiration to own your own home is unlike the majority of our European neighbours who consider renting the norm – so let’s not right off renting as the poorer alternative just yet. Read on to find out more…
Advantages To Owning Your Own Home
By owning a property you have an asset, which over time, has proven to be a way of acquiring wealth as values have increased, allowing for the odd dip. It enables you to start a process of financial planning and is a great way to learn and grow as you move through the different phases of life. Ultimately as long as you pay your mortgage, you will be paying off one of the most valuable assets you can have and will eventually own the property outright.
Long Term Investment
Property is one of the most secure forms of investment for you and your family, with options such as Equity Release which can enable you to assist your children with their first home or help you with your retirement plans.
Mortgage Payments Likely Cheaper Than Rent
With current interest rates at a sustained low level, securing a mortgage is a lot easier with monthly outgoings proving to be cheaper than renting. This is especially true in property hot spots such as the south east and London. There are also flexible terms on repayment available so you can change during your mortgage agreement. Please be aware you would need to speak to a fully qualified mortgage consultant about your options.
Freedom To Put Your Own Stamp On The Property
As individuals we like to express ourselves in many ways, including clothes, music and lifestyle choices. Property ownership allows you to further express yourself as you can change and adapt it to suit your own requirements and style. Your property can basically become an extension of you, within your social environment – by putting your own stamp on a property, where you can entertain and socialise with family and friends, provides a genuine sense of pleasure and pride.
Establish Your Family Into The Local Community
Owning a property often goes hand in hand with ‘putting down roots’ and provides the ideal opportunity to be part of a community. Feeling part of something is a natural human desire, so establishing your family into the local community whether through work or the local school, enhances your well being – something we all strive for.
Drawbacks To Buying A Property
Higher Upfront Costs
When you buy a property there are upfront costs such as stamp duty, mortgage fees, surveys and solicitor fees, that need to be accounted for at the start of the process. By comparison these are a much higher upfront outlay than a rental deposit which is usually the equivalent of 6 weeks rent.
A Mortgage Is A Big Responsibility
Interest rate rises can increase your monthly mortgage repayments, unless you get a fixed rate. With regard to your mortgage, you should always speak to a qualified mortgage consultant if your situation changes. If you do not keep up with your mortgage repayments your home could be repossessed.
Your Outgoings Could Go Up Unexpectedly
One has to take into consideration the upkeep of the property. As the owner you are responsible for maintaining the property and covering the cost of any failures or breakages. You have to pay for any repairs yourself which could prove costly. However, taking out the relevant house/content insurance is strongly advised and could help cover these unexpected costs.
More Time Consuming
Moving home can be a very time consuming process, but it is strongly advised that if you have a property to sell, then you find a buyer first before looking for your ongoing purchase. This will help free up funds for the upfront costs (detailed above) and ensure a smoother chain on your side as well as putting you in a stronger negotiating position when it comes to agreeing a purchase price on the home you want to buy.
Separation With A Partner Can Be Made More Complicated
If you get a joint mortgage with a partner and then separate later down the line, it can be complicated and costly to sell the property. Always speak to a qualified mortgage consultant who will be able to advise on the best options for your situation.
Mortgage Repayment Example For First Time Buyers
To help any first time buyers reading this article get an understanding of the costs involved, we’ve provided this example of a 2 bedroom flat for sale in Weybridge on the market with an asking price of £350,000.
2 Bedroom flat for sale in Weybridge £350,000 – View Details
For this example, we are going to assume that our first time buyers are a professional couple in their early 30’s, who have a combined income of approximately £65,000 per annum. Let’s have a look at how the numbers stack up:
|Loan To Value (amount borrowed against price of property)||85%|
|Mortgage Repayment Term||35 Years|
|Lowest Interest Rate||1.74%|
|Mortgage Repayment||£960 per month|
Advantages To Renting A Property
Fixing Emergency Repairs Is Only A Phone Call Away
As a tenant you don’t need that ‘rainy day’ pot stashed away for unexpected domestic issues/repairs such as a broken washing machine or blocked drain. If you have a problem with the property then you simply call the landlord/property management agent to request it is fixed. The landlord/property management agent is legally responsible for maintaining the property and fixing any issues as quickly as possible. All property management agencies should also have an ‘out of hours’ contact list for emergency repairs.
Have The Lifestyle You Desire
Renting can allow you to live where you want, enjoy a lifestyle you desire and have a better quality of life, which you may otherwise not be able to afford if you were to buy in the same area.
Try Downsizing Before Committing To A Smaller Property
Lots of people outgrow their homes, but likewise many homes outgrow their owners. Moving into rented accommodation can offer older people the chance to experience life in a smaller property, before they commit to downsizing to a smaller permanent home, thus helping to acclimatise them into a new way of life.
If you don’t plan to stay somewhere for more than three years, whether it be because of work commitments or family, renting in the short term can give you more freedom. If you find yourself in a position where you need to move quickly, renting offers flexibility within contract terms.
Putting Yourself In A Good Position To Buy
First time buyers in particular tend to be more focused on area and amenities than perhaps a settled family unit who can compromise on area and finish, but not size. Flexibility with rental contract lengths can allow you time to be housed whilst searching for the perfect property. Then, when you do find your dream home, you are the ideal buyer with no chain attached to your offer.
Experience Living In An Area Before Committing To Buying
Many renters will move for either work, family or relationships. Whilst purchasing a property may be the end goal, making the right purchase is critical in order to maximise profits and avoid a financial loss. Renting provides the opportunity to experience an area first-hand so you can see if you fall in love with your surroundings, before committing to a permanent move.
Drawbacks To Renting A Property
You Are Paying Off Your Landlord’s Mortgage
All of your rent payments go to your landlord, not towards owning your own home.
You Have To Pay Rent Even After Retirement
If you never buy a property you may have to pay rent for your whole life, even after you retire.
Lack Of Security
If your landlord decides to sell or get new tenants, you have to move out with only 1-2 months’ notice.
You Can’t Make It Your Own
Your landlord can set rules and restrict changes you can make to the property so you are not able to put your stamp on it as you would in your own home. Any improvements you pay to make to the property, could increase its value, but this would only benefit the landlord when they come to sell or find a new tenant.
The Deposit Is Held Until The End Of Your Tenancy
You have to pay a deposit before you move in (usually equivalent to 6 weeks rent). This should be held by the Deposit Protection Service (DPS) until your contract ends, at which point your landlord may keep some or all of it due to damage etc. You do have the right to dispute any claims to keep your deposit.
Your Rent Could Go Up
Your landlord could decide to increase your rent unless you have a written agreement that it will remain the same throughout your tenancy.
Rental Payment Example
To help anyone new to renting get an understanding of the costs involved, we’ve provided this example of a 2 bedroom flat available to rent in Weybridge on the market with a rental price of £1,200.
2 Bedroom flat for rent in Weybridge £1,200 – View Details
The costs involved in renting a 2 bedroom flat in the above development would be as follows:
|Reservation Fee||£500 (This is eventually deducted from the first month’s rent)|
|Preliminary Charge||£250 +VAT (£300 inclusive of VAT) per property for the first applicant. An additional administration fee of £75 +VAT (£90 inclusive of VAT) per additional tenant.|
|Guarantor Fee (If Applicable)||£75 +VAT (£90 inclusive of VAT) per applicant.|
|Security Deposit||Equivalent of 1.5 months rent or 2 months rent if pets allowed.|
A similar 2 bedroom flat to buy in Weybridge would cost £350,000.
Buy Or Rent?
When deciding if you should buy or rent, there are four questions you should ask yourself:
Q1. Do you have enough for a deposit?
A deposit is the amount you pay towards the purchase of a property yourself. It is shown as a percentage of the property’s value. You usually need at least 5% e.g. this would come to £10,000 on a home worth £200,000. You also need to save enough to cover the other costs of buying a home such as Stamp Duty, survey fees, solicitor’s fees etc.
Q2. Do you earn enough to afford a mortgage?
You can only buy a house if your income is enough to:
- Afford your repayments while still leaving enough money for living expenses and everything else you spend money on.
- Make lenders agree you will be able to afford the mortgage every month. If you do not keep up with repayments your home could be repossessed.
Q3. How long will you stay in your next home?
If you will only live in an area for a short period of time or you expect your circumstances to change, then renting would usually be cheaper and more flexible when you need to move again. However, if you intend to live in an area or property for a long time, then buying a house will work out cheaper in the long run, especially if you consider options such as renting it out rather than selling it on.
Q4. Will you be living with someone else or alone?
If you’re planning to live with a partner or someone else, you may be able to afford to borrow more which could help you get closer to your dream home. If you are planning to live on your own you will need to have more savings initially for your deposit. However there are options such as getting a guarantor who could help you get accepted for a mortgage or enable you to borrow more for your deposit. A guarantor will not own a share of the property you buy or be named on the title deeds, but they will have to sign a legal agreement to make your mortgage repayments for you if you fall behind or cannot continue to pay.
There is no denying that the decision to buy or rent is a big one and is very much based on individual circumstances, but there are clearly pros and cons to both.
If you would like more information and guidance on any of the above, please call your local branch and they will be happy to discuss your individual situation and help answer any questions you may have.