To buy or not to buy?: The everlasting debate of mortgage vs. rent
The housing market has endured an interesting year, thanks largely to soaring inflation, and the Bank of England’s efforts to handle that inflation. The situation is arguably as bad for renters as it is for homeowners; the former has been hit by rising rents, as landlords struggle to deal with rising mortgage repayments, while the latter have been impacted more directly by rate hikes.
If you’re faced with a choice between renting and buying, then there are a few crucial factors you’ll want to consider.
It’s all about timing
The housing market fluctuates over time – but in many cases, those fluctuations can be predicted. Spring and Autumn are historically the busiest periods, and higher demand tends to result in higher prices. By contrast, Summer and Winter tend to be quieter, and thus marginally cheaper.
You might be tempted to delay a purchase in the hope that interest rates will decline. But be aware that many other would-be homeowners might have had the same thought, and that prices will always increase as the interest rate drops.
If you’re renting, the situation is slightly different. Peak rental season usually arrives in summer, as this is when people are more likely to change jobs, colleges, or homes. More demand means that landlords can charge higher rents – but you might find yourself tied to a contract whose price doesn’t reflect the demand in Autumn and Winter. In short: it’s usually better to wait until the clocks go back.
The pros of buying a home
So, why might we favour buying over renting?
For one thing, you’ll spend less money in the long run. With every monthly repayment on your mortgage, you’ll build equity in the property. Do this for long enough and you’ll own it outright, which means you won’t have to spend a penny.
If you’re buying a new build home, then more often than not you’ll be protected by a warranty. In the event that repairs are required, you’ll be covered financially allowing you to keep your hard-earned savings for home furnishings and other personal touches.
In general, buying tends to be cheaper. Research by Halifax concluded that renting costs £500 more, on average, every year – and that’s even after the deposit, repairs and other factors are accounted for. Bear in mind that, in certain parts of the country, these costs will be even higher.
Challenges of getting onto the property ladder
Getting the keys to your first property can present a significant challenge. Or, rather, it can present several distinct challenges.
First, there’s the size of the initial deposit required. If you’re splitting this cost with a partner, or you have wealthy parents to help you out, this might be less of a problem. For everyone else, it’s a big one. Most lenders will expect a deposit of at least 5%; many will expect closer to 10%.
For many renters, saving is extremely difficult. This is because renting is more expensive, and so you might end up trapped – even if you’d be better off in the long run by making an investment. Thus, less wealthy people are disadvantaged.
Is renting a good alternative?
Renting is much easier to get into. You’ll have to find a deposit in most cases, but in England and Wales, it’s capped. You won’t need to worry about stamp duty, and you won’t need to worry about falling into negative equity. If you don’t intend to stay in an area for very long, renting makes considerable sense, since the process of buying a house can be lengthy and stressful.
How do you decide?
Your decision will depend on your means, preferences, and personal circumstances. You’ll want to think about your plans for the medium term, and whether you are likely to inherit property later on in life.
For many, getting on the property ladder is a worthwhile thing. But it’s not for everyone. Make sure that you’re making a choice that’s right for you – and not simply for the average person!
