Moving is one of life’s most stressful events, from searching for a place that suits your lifestyle and your budget, to the exhausting act of physically hauling all your belongings and starting over somewhere new. But that doesn’t really include the planning stages or the tough decision of whether to rent a place or buy a home. What’s worse, it’s unclear how Brexit will affect the UK’s long-term housing market and economy.
While it’s something many people aspire to do, purchasing a home isn’t a small matter. You also wouldn’t want to lose out on a potentially lucrative investment if the timing’s really right for you. Statistically, the average price of a home in the United Kingdom has risen much faster than the average yearly salary for young people in recent years.1 Millennials aged 25 – 34 years old, or those who graduated around the time of the 2008 recession, are less likely to own their homes today than in previous generations.2 One decade later, the financial crisis may still be to blame for that.
Is buying a home really the right move for your situation? If you’re still on the fence about whether you should rent versus buy, it’s essential to do your research for specific areas and determine your long-term goals. Read on to learn more about some of the pros and cons of renting versus buying a house.
Buying a Home or Condo
Government Schemes Can Assist You
If you’re considering buying your first home, the government’s various Help to Buy schemes can put you closer to than you think. The Help to Buy: Equity Loan allows you to borrow a certain percentage of the home interest-free for five years as long as you put down at least a five percent deposit. The property must be newly built and cost under £600,000. While there are other restrictions, it can be an attractive deal for the right buyers.
Buying Can Be an Investment
In most cases, property values increase over time, which make buying a home a solid investment. Statistics show that the United Kingdom house price index remained relatively stable in recent months.3 You’ll still need to be proactive in maintaining your investment for the long-term, but as long as there’s a demand for housing in your area, you should be able to see a return on the investment.
When you’re not a tenant living in someone else’s property, the home is yours to personalise as you see fit. That means that you can paint a mural in your living room, play guitar into the night and get the dog you’ve always wanted.
Possibility for Second Income
Whether you rent out a second bedroom or a parking space, leasing your space can be the ideal passive income source to help pay your mortgage. Even if you’ll just be out of town for a night, services like Airbnb can help you make some extra cash on the side with your property.
Large Upfront Cost
In most cases, you’ll pay a down payment for a home and will then take out a mortgage for the remainder. While this down payment may be a very significant amount of money, you should also have some sort of emergency savings put aside for rainy days, home expenses and anything else that may happen. If you have a smaller down payment, you’ll end up paying more in the long run.
Money Tied Up in Non-Liquid Assets
Property is considered a non-liquid asset, meaning that your money from the investment isn’t quickly converted into cash because there’s no guarantee that the property will sell within a certain timeline, regardless of where you live. Although you can use a home equity loan and use your home as collateral for borrowing money, you’d still have to pay interest on the amount borrowed.
Maintenance Can Be Time Consuming and Costly
When you own your home, you’re responsible for everything from lawn maintenance to repairs big and small. If you have an older home or don’t constantly stay current with upkeep, the costs can add up significantly. Your home isn’t guaranteed to appreciate on its own, even if your property may increase in value over time. You need to constantly maintain the inside and outside of your home, and it’s easy to fall behind if you have a lot on your to-do list.
Most home mortgages are based on a multi-decade repayment schedule. Of course, you can always repay your mortgage early or move before you’ve fully paid it off, but you still normally need to find someone else to buy your home before you move out.
Renting a Home or Flat
Lower Upfront Costs
There’s no down payment on a flat since you’re not buying into the property. Even if you have to pay a deposit or a few months’ worth of rent up front, the upfront costs of renting will almost always be less expensive than a deposit on a home.
If you’re not particularly handy, the fact that renting a home or flat involves little-to-no maintenance is definitely a plus. Additionally, you’re not responsible for shovelling snow, mowing grass or any expenses that come from it.
Easier to Budget
Since your rent is relatively stable, especially when you have a lease, it’s generally easier to plan your month-to-month expenses and maintain a budget. There won’t be any renovation costs you’ll need to cover, and you aren’t responsible for emergency expenses related to the flat in most cases. Renter’s insurance is also much cheaper than homeowner’s insurance.
No Return When You Leave
Unless you expect a security deposit back from your landlord, you won’t receive any kind of payment when you leave. You’re not building equity when you pay rent in a standard lease. That means that you’re helping your landlord pay their mortgage, and not your own.
You’ll likely have neighbours in a rental building, and you won’t be able to choose who they are. And you’ll need to abide by your landlord’s rules. They’ll also legally be able to visit your building and enter your rented space, provided you receive advance notice.
While it’s a lot to consider, you should carefully weigh your options for your specific situation, desired location and realistic budget to determine whether buying or renting a home is right for you.
1Cribb, J., Hood, A., & Hoyle, J. (2018). The decline of homeownership among young adults. Retrieved 13 September 2019, from https://www.ifs.org.uk/uploads/publications/bns/BN224.pdf
2Chapman, B. (21 August 2018). Home ownership falls more in UK than any other EU country. Retrieved 12 September 2019, from https://www.independent.co.uk/news/business/analysis-and-features/uk-home-ownership-falls-more-than-eu-country-france-poland-property-market-a8501836.html
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.