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Buying vs Renting: Which is Best?

Instead of throwing away thousands of pounds a year on rented accommodation, maybe it's time you invest and take your first step onto the property ladder.

Which is Cheaper for You?

With mortgage rates low and rents high, Halifax reckons it is now 16% cheaper to buy than rent a home.

It has calculated that a three bedroom house costs £621 a month to own, compared with £741 a month to rent. Over a year, that means owning is £1,440 cheaper, and that includes household maintenance and insurance costs.

Of course, the specific calculation for you of renting vs buying will depend on a number of things, including: rents and house prices in your area; the mortgage rate you qualify for and the property you want to live in. But, there are a few simple steps you can take to get an idea:

  1. Work out the cost to rent

    Go to a property portal such as RightMove to work out much the house you want costs to rent per month.

  2. Work out the cost to buy

    Use the same site to see how much a similar property would cost to buy.

  3. Calculate your savings

    Work out how much savings you have – you need at least 10% of the property’s value to buy it with a mortgage.

  4. See what’s available

    Go to Totally Money’s mortgage best-buys to see what sorts of rates are available for the loan-to-value you need. Your mortgage payments will be cheaper if you have a large deposit.

  5. Calculate your monthly payments

    Go to a mortgage calculator to see how much your monthly payments would be according to the likely size and rate of your mortgage.

  6. Don’t forget the extras

    If you buy a house there are additional costs you have to cover including: buildings insurance; service charge (if you’re buying a flat); and building up an emergency fund to cover the unexpected like a broken boiler.

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Are you Ready to Settle Down?

If you need to move around for work, or you want the flexibility of being able to drop everything if offered the adventure of a lifetime, renting is usually the best option.

Tenants can leave their homes within a few weeks or months and never worry about it again, unlike homeowners who must go through the lengthy and expensive process of selling, or they must let their homes.

However, owning a home can provide greater peace of mind. You don’t have to worry about your landlord suddenly selling up and booting you out, which can happen with very little notice. As long as you pay your mortgage every month, that house is yours.

And when you own your home, your biggest monthly payment is paying off something that will eventually belong entirely to you and that can be passed onto your children.

Don’t make a decision about where to live based on market predictions

No one really knows what’s going to happen to house prices or rents in the future. If everyone had known the global financial crisis was about to hit, sending house prices plummeting, no one would have bought at the peak of the market in 2007. Of course most people didn’t know, and many ended up in negative equity – where their mortgage is for more than their house is worth.

Have you Done your Research?

While you shouldn’t gamble anything on house price predictions, you should know what’s going on in your local market. There is a wealth of information online that allows you to research house prices in your area. The House Prices Indexes at Nationwide and Lloyds are a useful indication.

The LSL Buy to Let Index is a useful tool for both landlords and tenants to see if rents are going up or down, and offers predictions for the future.

If you’re interested in a specific road or even property, websites such as Zoopla and Nethouseprices allow you to see the selling price, and date, of houses.

Renting vs Buying : the Pros and Cons

Renting

  • Flexibility
  • Less risk and less responsibility
  • None of the costs associated with buying such as stamp duty
  • ‘Money down the drain’
  • Can get kicked out with little notice
  • Landlords and letting agents can be frustrating to deal with

Buying

  • Greater security
  • Can decorate and renovate how you like
  • Investment for the future
  • Vast sums needed for a deposit and stamp duty
  • Responsible for maintaining property
  • It’s expensive to sell and a hassle to let if you need to suddenly move.

Are You Ready to Buy?

Do you have savings worth at least 10% of the property value?

  • YES – Go to next question
  • NO – You are unable to buy now unless you go through one a Government scheme.

Have you enough cash to cover stamp duty, legal fees, furniture and repairs?

  • YES – Go to next question
  • NO – You will need to keep renting until you can afford these extra costs of buying.

Are you happy to settle down in a house for at least several years?

  • YES – Go to next question
  • NO – If you’re looking for the flexibility to move quickly, you are better off renting.

Are you happy to decorate, repair and renovate?

  • YES – Go to next question
  • NO – You may be better off renting and leave all the household repairs to your landlord.

Do you want the security of having a home or the future?

  • YES – You should consider buying!