It’s the ultimate property debate: should you rent, or stump up the money and buy? For some, this conundrum isn’t even a possibility. In the last decade, it has become harder than ever for first time buyers to get on the property ladder. Renting has become the default choice, whether we like it or not. However, if you have scraped together the money for a deposit, is buying worth the money? Quite simply, if you have the money, then yes, buying is more profitable than renting.
Unfortunately, it’s never quite that simple, is it? Whether you buy or rent, there are hundreds of small considerations to bear in mind. Today we’ll look at the complete list of pros and cons involved with both sides. Buying is a fantastic route. You’ll build up equity and eventually you’ll pay off the mortgage and own it outright. But, that doesn’t come without its risks, downsides and hidden payments! Renting is quick, easy and flexible, but rife with its own shortcomings.
Without further ado, let’s get into the details and see which is right for you.
Sheer Choice – Quite simply, there are more properties to choose from when you look at rental properties. There are thousands of options in every city with new properties hitting the market regularly. Thanks to short term contracts, new spaces crop up all the time. Just take a glance at www.london2let.com and see the sheer number of options available in London alone. There is always an option in your price range and the options are endless.
Flexible – The great thing about renting is that it provides a short term solution. Of course, you can extend tenancy agreements over a number of years. However, on the other hand, you can often find a month-by-month contracts too. They’re great for finding your feet in a new city or if your personal circumstances are up in the air. If you come into a bit more money, you can quickly and easily upgrade to a new place.
No worry about maintenance – One thing we love about rental properties is the peace of mind that comes with them. You’ll have to double check your contracts here. But, with a good contract, your landlord should be responsible for all maintenance and repairs. Of course, this is all within reason! Big issues like boiler breakdowns and wear and tear is something that you shouldn’t have to worry about.
More expensive over time – This is single biggest factor that pushes people to buy. When you pay rent, the money is lost. You aren’t building equity or securing an asset. At the outset, renting is certainly cheaper. Monthly payments can be very low and the down payments are minimal. However, experts generally predict that if you stay in a property for more than four or five years, you’ll lose money. Use a mortgage calculator to work out which proves cheaper for you.
Inability to make changes – One of the biggest troubles with a rental property is the inability to decorate or upgrade. Over time your family will grow and your needs will change. There may come a time when you feel like extending into the attic. It could be something as simple as buying a new fridge or replacing certain fixtures and fittings. In a rental property, you’re simply not at liberty to do any of this. It can be frustrating for renters, especially if you love to put your own stamp on a place!
You’ll make money – The best thing about buying property is that it’s a great investment. You are building equity in your property and growing a valuable asset. Most importantly, you’ll ride the property market too. Although there are occasional dips, the market is typically always rising. We have just come out of one of the biggest downturns, but now we’re on the rise again. If you play the long game, you’ll ride the property wave upwards. In some cities, like London, homeowners are reporting increases in value of over £100,000 a year.
Once you’ve paid the mortgage, it’s all yours. – This is another fantastic point in favour of buying. Yes, you are bound to monthly mortgage repayments. But, once they are paid off, you own the house outright. After it’s paid off, the house may well be worth significantly more than you paid for it too. This is particularly valuable when it comes to retiring. If you can pay off the mortgage before retirement, you’ll have almost no outgoings in your golden years! Buying property is your first step to financial freedom.
Mortgage payments can be cheaper than rental rates. – Having recently bought property, we can tell you that mortgage rates can often be less than renting! On a monthly basis, the minimum repayment is usually lower than a renting rate. This is only true if you’ve entered into a sensible mortgage deal. The other benefit is that mortgage repayment is flexible. One month you can pay a hefty amount, the next you can opt for the minimum fee.
Expensive up front – This is the real killer for those looking to get on the property market. Buying a house is expensive, there’s no two ways about it! The minimum deposit required is typically 5% of the asking price. We really suggest pulling together a larger deposit than this before you buy too. There are also fees, tax and stamp duty on top of this.
You’re at the mercy of the market – Although you can ride the market to the top, you’ll ride it to the bottom too. In the poor economic periods, it can be very difficult to sell and you may even lose money. This can be devastating as your house value could be less than the mortgage that you owe. This is called upside-down mortgages and is very difficult to repay.
Maintenance costs – When you own your own property, you are responsible for all of the work. This can often be crippling to your finances if the worst happens. A broken boiler can set you back thousands. Over time, structural problems can occur and can be expensive to fix. You’ll need a good emergency fund to counteract this.
Inflexible – Finally, buying property is particularly inflexible. By its very nature, buying property is financially viable when you stick it out for the long run. Moving on is difficult, expensive and time consuming.
It all comes down to your own personal circumstances. Renting is a great option for those who require flexibility and a quick turnaround. Buying will favour those with some money set aside and long-term plans. We hope this has made things a little clearer for you! Until next time!