Rent or buy? Which is best for you?
With so many people struggling to get a mortgage since the recession first hit, the cost of renting a house or apartment has skyrocketed. Now that the worst seems to have passed for the property market, and mortgages are more readily available, it could pay to take that first step onto the ladder.
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But is it really cheaper to buy than rent? We look at the upsides and downsides of both.
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Buying
Benefits
The most obvious benefit of buying a house is clear - it's yours. Once you own a property, you can decorate, extend or alter it (depending on planning permission) as you see fit, put your own stamp on your home. Furthermore, any improvements you do make are likely to add value.
The value is another area where buying can be beneficial. Should the property market improve and prices start rising, you could easily make money when you sell. This is then the key to moving up the ladder and getting a mortgage for a bigger or more desirable property. If you're happy staying in one place and manage to pay off your mortgage entirely, you could profit greatly from the sale, particularly if you are then at a point where you want to downsize.
With interest rates at an all-time low, buying could even mean you're making lower monthly payments than you would if you were renting, though that depends largely on the area, size of property, and whether you have a lump sum as a deposit.
Pitfalls
Buying a house or flat is a serious financial commitment. If you don't budget correctly and buy something you can realistically afford, you are in danger of losing your home and the deposit that you put down on the property. Mortgage arrangement fees, stamp duty, and a potentially hefty deposit (typically 10 per cent of the property price, or lower if you enter into a shared ownership or the Government's HomeBuy scheme) can also put a strain on buying budgets.
There are potential financial pitfalls in terms of maintenance too. If something goes wrong - the boiler packs up or the roof begins to leak - you are liable and will have to pay for the repairs yourself, the costs of which can be high. Leasehold flats can be particularly pricey on the maintenance front, as you will be required to pay an yearly sum into a fund, as well as ground rent.
What's more, should property prices take a tumble as they did a few years ago, you could end up in negative equity, where your mortgage is greater than the value of your home, leaving you unable to move on.
Overall, buying when the property market is not booming is really a long-term option. You won't have the flexibility to move as easily or quickly, whether for work or personal reasons, and you may find it hard to sell depending on the market.
Renting
Benefits
Though the majority of rental properties do require a deposit (usually a month's rent with a month paid in advance), it is nowhere near on the scale needed to buy a home with a mortgage. However, aside from the usual household bills, maintenance of the property or building are covered by the landlord, as is the replacement of any appliances when you rent.
It's also a more flexible option. The average rental contract is six months, with the choice of continuing on a month-by-month basis. Not only does that mean that you are not tied to one home or one area for a long period of time, once the original contract is up, you can make a snap decision with just one month's notice. This can be especially useful if you are setting up home with friends or at the beginning of a relationship.
Pitfalls
In the current market, monthly rental payments are, in many cases, more expensive than the mortgage payments on a similar property in the area. And though the lack of a long-term commitment means you are free to move as and when you please, renting also means you do not benefit from all the money you have paid each month.
While major maintenance costs are covered, accidental damage or failure to keep a rented property in good condition could mean you lose your deposit. Bear in mind also that if you have pets, children, or you smoke, you may find it harder to find a property to rent.
What's right for you?
What decision you make as to whether you rent or buy will depend largely on your personal circumstances. Right now, it appears to make good financial sense to buy because of the low interest rates, but while the monthly mortgage payments on a three-bedroom house are lower or similar to the rental costs, the price of the deposit might still prove prohibitive.
If you are struggling to make a choice, do plenty of research in your chosen area, and check both rental and buying costs of similar properties.
Are you sticking with a rental property, or have you taken the plunge with a mortgage? Leave your comments below...
