Buy or Rent? That is the question…

Posted by & filed under Estate Agents, Finance, First Time Buyer, House Hunting, Mortgage, Moving Experience, Property Purchase, Property Search.

Rent or buy signsIs it better to buy or to rent? This is a question that I have been asked on numerous occasions, and a decision that’s being faced by increasing numbers of people.

There are advantages that can be argued for both options. For example, as a tenant:

  • No maintenance costs to worry about
  • Greater flexibility – It’s much simpler to move, with just one month notice
  • Repairs are the responsibility of the landlord, in terms of both cost and hassle

After taking all of the above in to account, I still have to say that I think that it makes more sense to purchase a property. I’ve always thought that this was case, and I’m even more convinced at the present time because the mortgage rates currently available are so low.

Here’s an example, with some rough figures, of how things could stack up. Figures are based on a real property that was purchased by one of my clients recently.

Imagine you’d like to live in a one bedroom flat in a decent part of town, in a recently renovated and converted building. The asking price to buy is £145,000 and similar properties are being offered for rent at £800 pcm. You have access to savings or other funds of around £17,500.

Deposit of 10% = £14,500
Survey = £450
Broker fee = £179
Solicitor fee = £600
Disbursements = £400
Stamp Duty = £400

 

The good news is that after a total spend of £16,520 you have some funds remaining. Maybe you’d want to decorate when you move in, which is an option when you own!If you were to take a repayment mortgage of £130,500 over a 30 year term, using a 2 year fixed rate product, then (currently) payments would be in the region of £560 – £585 per month. As the property is a flat, then you’d need to pay a monthly service charge of £60.Remember rental value of the same property is £800 per calendar month. By buying the property you’ll have saved over £150 per month! Not only that, but remember:

  • Each time you make a mortgage payment, over £200 each month is repaying capital that you’d hope to release when the property is sold at a future date
  • You will benefit from any increase in the value that your new asset accrues, but remember that values can go down as well as up
  • If I were to live in the property, and keep up payments, after 30 years I would own it outright. This means that I can then live there for just £60 service charge.

Let’s not forget, as owners, the cost of maintenance. As long as it doesn’t cost £1,800 per year (which is unlikely for a recent renovation), buying definitely wins!