In the current property market more and more people are finding it harder to get onto the housing ladder and purchase their first property, with the average age of a first time buyer now sitting at 31. But is buying a house the best financial decision to make? While renting has traditionally been seen as lost equity as you’re paying the landlord’s mortgage, you don’t have the responsibility of maintenance costs and the risk of losing value in an investment. On face value renting vs buying is seen as a judgement based on circumstance, but is there a definitive factor that places one firmly above the other?
Buying a home
When you first set out to buy a house there a lot of costs that you need to budget for and not every buyer takes these into consideration, leading to a big shock when the bills start to pile up. Here are the fees you need to prepare for when buying a home:
- Mortgage arrangement fee
- Transfer of money fee
- Leasehold charges
- Conveyancing fees
- Stamp duty land tax
- Land registry fee
- Local authority searches
Taking your deposit, stamp duty and mortgage arrangement costs out of the equation, you can expect it all to come to just shy of £1000 which is going to eat into a big chunk of your deposit savings.
Once you have signed all the documents and you have the keys, you then own the property and the value of it can then rise or fall depending on the state of the market. If you can pay off more of your mortgage you can build up a sum that can allow you to sell your current property and put a larger deposit down on another.
Buying a property can be extremely expensive and not without its hidden costs, it can also be a poor investment that can lead to you losing money in the long term. If you were to purchase a property when the value is at its peak, you run the risk of your home being worth less that what you paid for it.
Renting a house
Renting a house is a much quicker procedure than purchasing because you can move in as soon as the references and tenancy agreement have been completed. Rental costs are on average higher than the average mortgage repayment however it can work out cheaper because the landlord is primarily responsible for the maintenance of the property.
When you rent a house you don’t have to worry about the boiler breaking down, the water pipe bursting or whether you need to fix a leaky roof, that is the responsibility of the landlord. The tenant is also bound under a much shorter contract term than a mortgage, therefore it is easier to move into a cheaper or more expensive house depending on your budget and circumstances.
Another benefit of being a tenant is that you could move to an area and a home which you could not afford to buy. If you can make the annual rental payments but are not be in a position to put down a deposit, renting could well be your best option.
The downside to renting a property, other than not paying into an asset, is that you have no control over whether the landlord wishes to renew your tenancy agreement. If you sign a 12 month contract there is no guarantee that it will be renewed at the end of the term, meaning you may be forced to find another place to rent with as little as two months notice.
In reality, the best decision is always going to be circumstantial and dependant on the situation of the individual. In the current market it may be better to wait it out for prices to drop before investing in a property, which could lead to renting being the better option. Also, if you’re not looking to settle in one area, renting will be the best option as it gives you the flexibility to move quickly and not have to go through the long procedure of selling a home.