Should I Buy or Rent?

It’s a big question, and one that we could all face at some point. Let’s be honest, it’s not easy buying (or even renting) your first home and taking that first step on the property ladder is likely to be one of the biggest decisions you’ll make. It’s important you understand the pros and cons. So, what are the positives and negatives of owning and renting? Let’s take a look.

Let’s start with the positives of owning

• Once you’ve paid off your mortgage, your home will be yours and you won’t have to worry about paying for somewhere to live.
• If your home increases in value, you could use the equity generated from the sale of your home to make you more financially stable. For example, the average price of a 3 bedroom house in “The Birds” estate (Chipping Sodbury) as of February 2011 was approx. £155,000*, where as in August 2015 the price had increased to approx. £223,000*.
• Freedom! It’s YOUR home and you can do whatever you like with it (within reason of course!). You won’t have to ask a landlord to make even the smallest of changes.
• You’ll have pride in your home as it won’t just be a place to live.
• You’ll be able to increase your credit rating, providing your repayments are made on time.
• Currently the government are giving very appealing incentives to first time buyers who are saving for a deposit to buy their first home with Help to Buy ISAs.

Potential negatives of owning

• It’s a big and long term commitment – you must be sure you can afford the commitments.
• If the value of your home falls, you might lose money on your original investment.
• If you don’t have a fixed rate mortgage then when interest rates rise, your repayments will go up. There is a way to tackle this, and that is through re-mortgaging (although may only work in some contexts) – this is something we can help with.
• You need to be sure you can cover those unexpected maintenance costs like fixing a broken boiler or leaky roof. Living in your home through winter without a boiler certainly isn’t the most fun experience to be had!
• If your circumstances change and you need to sell, you will incur selling costs such as estate agency and legal fees.
• If you buy the property with another person(s) and your circumstances change, deciding what to do with the property can be complicated and expensive.
• If purchasing with a mortgage, owning a home will require a larger sum of money up front (usually a minimum of 5% of the total mortgage value).

Positives of renting a property

• Moving out of a rental property is quite straight forward, as you only need to give about 1 months’ notice (although you should always check your tenancy agreement). Generally your initial commitment to rent is 6 or 12 months.
• General house maintenance is usually carried out by the landlord (unless damage was caused by you) meaning you can get by with a smaller maintenance fund.
• No massive deposit required when moving into a rental property. While the exact amount needed varies, the total amount is almost definitely significantly less than you would need to buy a house.
• You don’t need to purchase buildings insurance (this is covered by the landlord), although you might want to consider contents insurance.
• Applying to rent a property is a relatively quick process and normally takes about a week.

Potential negatives of renting

• There are normally admin charges for references, tenancy renewals, ect if you are using an agent.
• You are only living in a rented house on a temporary basis, meaning you are subject to the landlord’s decisions. There’s a level of instability as you are relying on the landlord to not sell the house and potentially ask you to leave, and you could be given as little as 2 months’ notice. If you have a family with children at school, this can be extremely disruptive. You also may not be allowed to have a pet, if your landlord stipulates a “no pet policy”.
• It’s highly likely that your rent will only ever increase.
• Renting isn’t an investment.
• You don’t have creative control to change the colour of walls, or hang pictures in your preferred locations as these changes will need to be approved by the landlord.
• The cost of damages could be greater. If you break something, you will likely have to pay for it at the end of the lease. There are no guarantees of how much it will cost.

The bottom line

Ultimately, it’s completely down to your individual circumstances to decide whether buying or renting is a more viable option. However, it’s absolutely crucial that before you making a decision, you consider both avenues to ensure you make the right financial decision for you and your family.

We hope this was of help, should you require any financial advice then don’t hesitate to give us a call. We have our own financial advisor, Mike who’ll be more than happy to provide you with a free impartial consultation.

* Data taken from Rightmove sold prices.