Should I rent or buy?
What’s good about renting?
Renting can be a great option if you value flexibility, given that most tenancy agreements are relatively short compared to a mortgage term which is typically 25 years. If your circumstances are subject to change fairly often, if you plan to relocate, if your job requirements change, then it is much quicker to find a new rental property than it is to go through a home purchasing process.
Do you think you might be earning more money in 2 or 3 years and therefore would like to live in a nicer property? If that’s the case then perhaps you might want to reconsider your buying plans. That’s because the costs of buying and selling make it easier and cheaper for you to be renting for those three years.
If you live in London you might notice that when you rent you might be able to afford to live in zone 2 or 3, perhaps even in zone 1. But when you look to buy, people start to move further out. If you value being close to the action, again, you might want to rent.
From a financial perspective, you typically only need a small deposit to rent, compared to 5% of the property value if you buy. This means the barriers to entry are much lower. And if anything goes wrong, like for example a boiler breaks or there is a crash in property prices, it is your landlord who has to foot the bill, and not you!
What to watch out for
Buying a property is expensive, sometimes prohibitively so, however it does go some way to guaranteeing some level of security in the medium to long term. As you pay off your mortgage, you are buying more of an asset, which tends to go up in value over time. So if in ten years time you come to sell that property, you might make some gains. If you were to be renting for that period of time you’d have nothing to show for it.
When it comes to the end of your mortgage payments, typically after 25 years, you’ll own the house in full, meaning you don’t have to worry about paying a mortgage or rent. Whereas if you choose to always rent, you will have that cost for the rest of your life. You may never sell this property, meaning you might not get the capital appreciation, but if you have children this is something that can be passed down to the next generation.
In terms of stability, buying a property means that you are more in control, because no landlord can increase your rent or ask you to move out because they would like to sell the property. This is a huge benefit if you have a family and kids and the cost of moving to a different area might also mean having to change schools etc.
Finally, when you buy a property, it is yours to do with it what you please! Want to redecorate it? go for it. Want to change what’s in the garden? You can do that too. A nice landlord might allow you to change the posters and some furniture, but they probably will not allow you to make any structural changes that might alter the value of the home. So if you fancy yourself as an interior designer, and can afford to, you’ll probably prefer to buy a home!
Want to read about other alternatives to buying a home with a mortgage? You can find out more here