When deciding whether to rent or buy a house, there are a host of factors that come into play when making your decision. Sadly, there is no one-size-fits-all when it comes to homeownership or choosing to rent a home. Many find themselves caught between a rock and a hard place, with would-be first-time buyers struggling to meet all the requirements.
House prices are currently at a record high, rising faster than average wages for several years now. Home affordability, on the other hand, is at an all-time low. According to UK government’s statistics, home ownership has dropped from 71% in 2003 to 65% in recent years. In this latest blog post, we ponder the question 'should I rent or buy a house?', discover the pros and cons of renting vs buying a house and how Habstash can help you determine your affordability when buying a property.
Is it better to buy or rent?
Alongside purchase prices, records have shown that rental costs have also reached high levels unheard of in previous years. With seemingly no easy option, it may leave you wondering is renting a waste of money and whether it's better to commit to buying.
Choosing whether to rent or buy a property largely depends on your personal situation and idealised future. For example, a home purchase can be a good idea if:
- You have a partner with whom you plan on staying together long-term
- You have the funds to put down a home deposit, whilst also taking into consideration extra costs like stamp duty and legal fees or you're lucky enough to have financial support from parents/family members
- You earn enough monthly to pay a mortgage and still live comfortably
- You have an income cushion in case interest rates go up and your monthly payments increase
The benefits of buying a home
A sense of ownership
Most people grow up dreaming of owning their own home one day. This is due to the sense of pride that comes with owning a property, that you can call your own and perhaps raise a family in the future. It also feels more satisfying knowing that your monthly payments are going into your house, rather than a landlord's pocket.
A financial investment
Financially, purchasing a home is more profitable than renting in the long run. This is because home prices can rise, which in turn adds equity to your home. So, when the time comes to sell your home, you could make more than you initially paid. It’s no surprise that first-time buyers should aim to get onto the property ladder sooner than later.
You can make the property your own
One of the joys of buying a new home is the DIY projects you get to undertake. Property ownership means you have the freedom to make the home your own, especially if you're a young buyer who has never owned a space before. This means the ability to decorate and restructure interiors, and the possibility to extend or build on the land if it’s a house.
The disadvantages of buying a home
Tied down to one location
Buying a property is a massive commitment, and though homes can always be sold in the future, it's important to know that you will be tied down to a location for a number of years. If you're considering wanting to live in different locations, buying a home may not be the best option for you. For example, you may be a recent graduate wanting to travel before getting your own place. to go traveling before settling down.
Responsibility for property maintenance
With house ownership comes responsibility for the property. This means forking out money for building repairs, as well as updating interiors. This is worth considering if you have less savings to fall back on.
Significant deposit and monthly payments
To be eligible for a mortgage, a significant deposit is required. This can eat into your hard-earned savings, as well as your monthly income for hefty mortgage payments. Consider whether you're able to afford a mortgage and also live a good quality of life without significant money worries.
The advantages of renting a property
The great thing about renting is that you aren't tied down for years at a time. This gives you the flexibility to vary your living location and learn which area and type of property are best for you.
Cheaper in the short run
In the short term, renting is cheaper than taking out a mortgage. Rental fees, which include a security deposit and agent fees, are significantly less than any home deposit plus home buying fees, and your monthly rental costs may be less than your monthly mortgage payments. This may be your only option, especially if you’re young and starting out in a new career with less financial security.
Not tied down to a mortgage
A mortgage is essentially the biggest loan anyone can take out, it can leave you financially restricted and tied down for a large chunk of your life. Renting gives you the freedom from worrying about paying a mortgage for the foreseeable future, which is why it works for younger people still figuring out their path in life.
The cons of renting a property
Lack of ownership
Renting comes at the opportunity cost of delaying your dream of buying a home. This means you'll essentially never be able to gain back any of the money you spend while living there. You also have no say in how long you live there, or whether the landlord goes on to sell the property. Renters were hit pretty hard during the Covid-19 pandemic and were only able to retain their homes due to measures put in place by the government including a complete ban on evictions.
Expensive in the long run
Though initially renting can be cheaper, you’ll spend more money in the long run. This is because you can never get any of the money back that you invested like you would in a house sale.
Can’t carry out home improvements
If the property isn’t to your taste or style, you’re limited with the home improvements you can carry out when renting. This means you could be living in a property that doesn’t make you feel completely happy or comfortable. When you begin a new chapter with a partner or even move out of your parents' home, you may want the space you live in to feel like home.
The bottom line
When it comes down to it, buying vs renting property largely comes down to your personal situation and what you can afford. When renting, you don't want to be doing it for too long. So, even if you have to continue to rent, start planning and set a target for your home deposit. Here at Habstash, we want to help you find out how much you can afford when buying a home to make your homeownership dreams become a reality.
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