Rent vs Buy – Your Best Option
Deciding whether to rent vs buy isn’t an easy decision. The answer can actually change depending on what stage of life you’re in, making the choice even harder.
Thankfully it’s easy to explore the benefits and negatives of rent vs buying. So while we can’t make the decision for you, we can help you by highlighting what you need to consider.
First, let’s cover what you have to payout upfront in each case.
While you can buy a property with as little as a 5% deposit, the best mortgage rates kick in around the 40% deposit amount. However, starting with a 20% deposit will get you a fairly good rate.
With any deposit, you’ll have to be able to prove you’ve saved the money or been given it as a gift. Stuck for inventive deposit saving ideas? Here are our top 7 tips!
Let’s look at some examples using actual figures. If you’re looking at a 3-bed terrace, on the market for £180,000 then you’ll need to find £18,000 upfront. On top of your deposit, you might have to pay a mortgage arrangement fee. As well as moving costs. It’s not uncommon for first-time buyers to only focus on the deposit and then get stung with the other costs.
If £18k seems like a lot of cash to have to save and then renting is cheaper upfront. Typically all you’ll need upfront is a month’s rent as a deposit plus a couple of hundred for checks (unless you rent directly).
Again our £180,000 3 bed would likely rent for £1500 per month. So you’ll need £1500 for the deposit, £250 for fees and the first month’s rent or another £1500. This comes to a grand total of £3250.
Just looking at the two figures the cost of buying 5.5 times the cost of renting. So purely on the upfront costs, renting wins.
Long term costs
On the surface, it will seem there’s little difference each month between the two. You’ll still end up paying someone an amount to live if your property.
Of course, if that person is a landlord then you’re contributing to their future wealth. Whereas if you’re paying down a mortgage then you’ll see the future benefits of any changes in prices when you come to sell.
While you don’t have to pay for maintenance if you’re renting, you face disruption during the process and a solution which doesn’t last.
If you buy you will be responsible for solving any problems. However, you might be able to do it yourself. Or even find a friend who will do it at mates rates. You’ll also be able to ensure the work the done to a higher standard.
Over the years, if you rent the cost is likely to increase. So you’ll need to bear that in mind before signing any lease. Remember even a small increase could make renting that property unaffordable.
However, assuming rates remain fairly flat, if you decide to buy then your monthly mortgage cost will fall. And you may even be able after a few years to remortgage on to a better and cheaper deal.
If rates fall, then mortgage payment should fall in line with the market unless you’re on a fixed deal. A rise in rates, however, could spell disaster and lead to a number of problems. These include negative equity, missed payments and even repossession.
House to home
The biggest downside of renting is unless you’re signing a long lease, there will be limits to what you can/can’t do to the property. The living room might look better in light pink with faux-vintage French furniture but if the landlord says no then that’s that!
Even if you do have an agreeable landlord, you’ll still have to redecorate on moving. Plus as a tenant, your landlord can decide when you move. So it’s worth bearing these factors in mind.
If you own the property if you’re free to decorate how you want to without having to get permission. And depending on the type of property, you might be able to add value by building an extension. Of course, you’ll need to fund the work and obtain permission from the council, but you’ll benefit from the increase in value.
This might seem like a weird factor to talk about but stick with us. It’s true that we live in a more fractured community, where neighbours rarely talk to each other, less care about the local community. However, and luckily, there are some people who care about building a strong local community.
While it would be absurd to say renters don’t care about their local community, it’s true that if you buy that you’re more likely to care as you’ll want to invest in the long-term future of the neighbourhood.
The exception is landlords who hold properties in trust for future generations. And so have a vested interest in nurturing a community as a way to ensure the next generation of renters and income for his children. The prime example of this is the Duchy of Cornwall.
Choosing between Rent vs Buy
If you’re still struggling to decide between rent vs buy, here’s some questions which will help you focus on choosing the right outcome for your situation.
Do you have enough saved for a deposit?
To recap, in order to get a good rate you’ll need at least 20% – which is a huge chunk of money. Yes, many options are available such as Help To Buy, shared ownership, guarantor mortgage and others. However, have a large deposit opens you to more options, deals, and rates, meaning you can get a better deal overall.
Can you afford a mortgage?
This might sound like a simple question but most overlook two key elements. You need to ensure you can still live a good life while paying the mortgage. It’s worth budgeting to have some cash left to spend each month on hobbies, clothes and enjoying life.
You also need to make sure you have enough cash coming in to afford any maintenance and unexpected bills.
While interest rates are at an all-time low, they will rise at some point. So unless you’re on a fixed mortgage, any changes in the underlying rate will impact your situation. A small change could make an affordable mortgage unaffordable overnight.
Your life plan
If you have wondering feet and get the urge to travel often then having a mortgage probably isn’t right for you. However, if you’ve found an area you love and see yourself living there for a while then buying a property will be a good investment.
How risk-averse are you?
If you don’t like risk, then buying a property is a good investment, which will grow your pot of money nicely over time.
However, if your more risk tolerant then you might consider renting and investing the money in art, wine, shares, a business, cars or any number of investment. All will provide a higher rate of return but have more risk attached.
One of our hero’s architectural and urban designer Ben Pentreath prefers to rent and invest his cash in assets which provide a higher rate of return.
Your relationship status
A mortgage is instantly more affordable if you’re living with a partner or a best friend. In either case, clubbing together to buy is a superb option. Do make sure to talk through what happens if you fall out, one of you marries or if unemployment looms.
Rent vs buy
One final tip, when deciding whether rent vs buy, make a list of positives and negatives and consider which one weighs more for your situation.