Buy or rent: Which makes sense, and when?

buy or rent

buy or rentThe decision as to whether to buy a home or continue renting is not one to be taken lightly. Although the right choice is never the same for everyone, there are some main signposts that we should all look out for.

Here are the five things you should consider when deciding whether to buy or rent:

1. Timeframe

You need to think carefully about how long you’re planning to stay in your new property.

Gone are the days when house price rises were a sure thing.  There is still a lot of uncertainty in the housing market, so if you’re looking for a guaranteed increase in property values then you’re unlikely to find it; there may even be a further fall.

However, in my opinion, over a three to five year period house prices will always remain strong and see some growth.  If you look back over the last 20 years that has always been the case, even with the various crashes.

So, if you’re thinking of buying you need to commit to be in that property for at least three to five years.  If there’s a chance you might need to move in one to two years, then my advice would be rent.

2. Upfront costs

When you rent you typically need to pay one month’s rent in advance and one month’s rent as a deposit.

When buying, however, there are many more upfront costs such as stamp duty, solicitor fees, survey fees, and lender fees.

These fees add up to a significant sum over and above your mortgage, so make sure you’re aware of all the fees involved in buying a house.

If funds are limited, you may currently have no choice but to rent.

3. Knowledge of area

People all too often buy a property in an area they don’t know too well, then quickly realise that it’s not the type of neighbourhood they were expecting.

If you’re thinking of buying in an area you haven’t lived before, then it may be worth renting there for six months to see how you like it.

4. Buying with someone else

Sometimes it can be hard to get on the property ladder on your own, so a lot of people decide to buy with a friend or family member.  This could be a good idea, but not if you’ve never lived with them before – and especially if you have children.

A house purchase is a long term commitment so the last thing you want is to have bought a house with the housemate from hell, which can be disruptive to your family life.

So, again, why not rent for 6 months and test the water?

5. Monthly budget

There are costs you have to pay as a homeowner that you don’t have to pay as a tenant.

These are Service Charge and Ground Rent on flats, as well as Buildings Insurance, Life Insurance, and Maintenance costs on the property.  Do an analysis of these costs to help decide if you can afford to own or if you’re better off renting.

Homeownership is a great thing to work towards – especially once you have a family. But buying a home is a serious move and needs careful thought. If you’re thinking of taking the first step onto the property ladder, consider each of these points so you can be sure it’s the right decision for you.

Scott Rawlings is Director of Mortgages at Radcliffe & Newlands and has been an IFA for over 11 years.  In that time he has helped over 2000 clients on their property/mortgage journey.  When he’s not helping clients he’s either being kept busy by his two children Isabelle and Ben, or finishing off refurbishing his home which seems to be a never-ending task!