Renting vs Buying: Which is best?

pink and blue terraced housesTaking your first step onto the property ladder is a pretty big deal; in fact, it's a milestone for most people.

Indeed, it comes as no surprise that property portal Rightmove is now the UK's 6th most popular website, according to the Experian Hitwise list, published only last week.

We just can't get enough of househunting!
%VIRTUAL-SkimlinksPromo%But is owning your own home really all it's cracked up to be? Are we deluded in prioritising homeownership when there are so many advantages to renting?

Most importantly, in the current climate, would wannabe buyers be better saving their money for longer or purchasing their own home now?

Why buy?

Security: When you buy a property it feels like a home because it really is your home. Renting can feel insecure because you can always be given notice to leave (subject to your contract).

As a homeowner, you can feel settled because, as long you pay the mortgage, you have the right to live in the property.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "The downside of renting is that you are at the mercy of the landlord. If he wants to sell up, you have to get out, so there isn't security of tenure."

Make it personal: You have the freedom to do what you want to the house when you own it (within reason), and if that means painting the walls bright orange, so be it. Smoke if you want, take in a lodger or have pets in your home.

In contrast, renters are not usually able to put their own stamp on their home, or live exactly how they would choose, and in some cases contracts are particularly onerous, even forbidding the use of blu-tack.

Profit from property: Owning a home can prove a wise investment over the long term. In fact, according to Halifax the average UK house price has risen very quickly in the last 12 years alone, from £85,000 in 2000 to £163,000 today. Of course, there are no guarantees and house prices can go down as well as up.

Harris says: "Buying a home is expensive and you will need to come up with a sizable deposit. But over time it should appreciate in value, providing you with a nice little nest egg."

No money down the drain: Your monthly repayment is slowly but surely chipping away at your debt (with a repayment mortgage), rather than paying off your landlord's mortgage.

Many people want to own their own home because they feel like they would be throwing money down the drain by paying rent each month.

Cheaper monthly costs: According to property portal Zoopla, it's now cheaper to buy than to rent in 42 of the top 50 (84%) towns and cities in Britain.

Its research says that renting now costs an average of 14% more per month compared to servicing a mortgage (on an interest-only basis) on an equivalent property.

These high rents are partly due to massive demand for rental property as frustrated wannabe first-time buyers rent for longer while they save up the large deposit demanded by lenders.

Why rent?

Freedom: When you rent a home you are only tied to that property for the length of your contract, and for many that is a matter of months. This gives you enormous flexibility. Whether you relocate with work, move closer to family or to a partner or just fancy a new place to hang your hat, you can simply give your notice and go.

When you own a property you have to sell your place first. It can take months and months to find a buyer, or you may not be able sell at all. In the current market many sellers can't achieve the price they want.

With renting there is simply none of that stress. Harris says: "The big advantage of renting is that you have more flexibility and can move practically at the drop of the hat, give or take a bit of notice."

No maintenance costs: Maintaining a property is expensive, and it's a very boring way to spend your money. But when you own your own home it's essential you spend money on maintenance to avoid bigger costs down the line. Fail to get your boiler regularly serviced and it could cost you thousands to replace if it breaks.

Renters can sit back and relax, because most maintenance and repair jobs are simply not their responsibility. If the washing machine breaks, your landlord will fix it or replace it – at no cost to you. It's the same with a leak, or a broken cupboard door.

Of course, that does rely on you having a responsible landlord, says Harris: "If you don't have a good landlord, the property may not be repaired quickly, which can be annoying."

Stagnant house prices: Prices might rise over the long term but they are not rising right now, at least not across much of the UK. Average UK house prices are pretty stagnant – in fact they fell 1% in 2012, according to Nationwide, which predicts they will remain flat during 2013.

If prices are falling or static in your area, you might be better off continuing to save in the knowledge you will be able to afford a better place in a year or two. Or you could access a cheaper mortgage if you can muster a bigger deposit by saving for longer.

No crippling costs: There are huge costs to consider when you buy and many wannabe homeowners simply don't have the money, even if they can afford to service a mortgage. There's the deposit, Stamp Duty, mortgage arrangement fee (which average over £1,500), legal fees, survey costs. And that's before you have the costs of furnishing your own home.

By contrast renting has cheaper entry costs, as Harris points out: "You don't have to find a big deposit; most landlords require around one month's rent as a downpayment so it's quite accessible."
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