To Rent Or To Buy?
by Linda Nightingale
That is the question. Linda Nightingale gives us the answers with her comparison of renting or buying and the pros and cons of each.
Renting appeals to many, particularly the younger generation, as a quick and easy way to secure a certain amount of independence without major outlay. But there are costs which will be incurred: letting agents or landlords will want to run a credit check and a deposit will be required. The first months rental will need to be paid upfront and there could be administration fees added.
As a tenant you need to be aware that you will most probably be responsible for paying household bills and of course you should have contents insurance. Some landlords may agree to cover some bills but you need to know before you commit.
Be cautious; check local rental prices for similar properties so that you know you are paying the ‘right’ price.
Many find that a rental home is perfect for their circumstances but bear in mind that there is no growth benefit in terms of a possible capital bonus if you do not own the property. The money spent is just that – spent.
However, many homes are beautifully presented and tenants have the ability to move premises far easier and quicker than those tied into home ownership and mortgage commitments.
Buying hasn’t been this cheap for many years. Currently buyers can secure a fixed rate mortgage for less than 2% which is decidedly lower than the whopping 14% plus which buyers were paying in the 1970s.
With the recent reduction in the interest rate it is difficult to know how figures will change in the future but it is worth remembering that fixed rate mortgages are only fixed for a stated period of time so always allow for an increase to ensure that you do not have sleepless nights.
2016 was a difficult year to predict property values as Brexit loomed large for several weeks in the early summer and as the UK has not even begun the official 2 year break period from the EU, prophesying whether house prices will rise or slump is difficult. However, here in the south east there has always been demand for homes and in general bricks and mortar have traditionally proved a good long term investment.
The Government has created the Help to Buy:ISA Scheme which pays first time buyers a government bonus. For example if you save £200 per month the Government will add £50 up to a maximum of £3,000 thus boosting your ISA savings account from £12,000 to £15,000. Do check when your money is available to use though.
When you choose your dream property it is prudent to have a structural survey so that you know if there are any inherent problems which could prove costly.
- Quick and easy to settle in and/or to move on
- Little responsibility. White goods, heating etc. are usually the responsibility of the landlord
- Large deposit not required
- Subject to rent increases
- Non ownership of the property means that over the years there is no capital benefit
- Need a substantial deposit to secure mortgage
- Subject to vagaries of mortgage rates
- Responsibility of ownership including maintenance/running costs
- Should realise good capital growth long term
- Could be part of pension portfolio in the long term
- (www.bankofengland.co.uk/statistics/Documents/articles/2015/jul.pdf) (1970s figures)
- (Current fixed rate mortgage rates) http://www.telegraph.co.uk/personalbanking/mortgages/best-fixed-ratemortgages-two-three-five-and-10-years/
- (www.helptobuy.ov.uk) Help to buy Isas