SHOULD I BUY A HOUSE OR RENT IT?
Rent? Or Buy?
This is the question many people ask themselves when they try to work out what would be better for their finances.
Often one thinks that buying a home is a better choice than renting it because it will be cheaper and the monthly payments will go towards something, ie. eventual ownership of the property. Let’s look at the option of buying a property and renting it from both angles.
The merits of buying a property
There are three main mortgage options if you’re moving home: either ‘porting’ your existing mortgage across to a new property; porting your mortgage and borrowing additional funds, or taking out a new mortgage. Here’s what you need to know.
- Porting your current mortgage. If you’re tied into your existing mortgage deal, your lender may be prepared to let you transfer it across to your new property without paying an Early Repayment Charge (ERC). However, if they do allow this, you’ll still need to go through the mortgage application process again, as your lender will need to be satisfied that you meet their current lending criteria and that the mortgage is affordable. Find out more in our guide to Porting a mortgage.
- Moving to a larger home with a bigger mortgage. If you’re porting a mortgage and need to borrow additional funds, bear in mind that this may be at a different rate to your current mortgage. If you do need a different deal, it’s a good idea to try and ensure this finishes at a similar time to your existing mortgage so that you can then remortgage the whole amount onto the same deal at a later date.
- Taking out a new mortgage. If you’re currently on your lender’s Standard Variable Rate (SVR), or there are no charges to move away from your existing mortgage or lender, you may decide to take out a new mortgage when you move home. There are many different types of mortgage deals you may want to look at, so take a look at our mortgage guides for more information, or give us a call and an expert adviser will be able to recommend the right option for you.
The merits of buying a property
- Your monthly payments will go towards the eventual ownership of your home, unlike rental payments
- Your home is an asset whose value will increase with
- You do not have to move home unless you want to
- You can renovate to your heart’s content without having to ask for permission from your landlord because YOU are the boss
The demerits of buying a property
- You have to have a good credit history and your finances organised in order to secure a mortgage. This requires time and discipline
- You have to save up a substantial amount of money for your deposit. This could take many months or years of scrimping and saving
- You must keep up with the mortgage payments or risk repossession of your home
- There is always a risk that your home’s value may diminish due to various causes
- You will be responsible for the expenses of insurance, maintenance and repairs
The merits of renting
- You do not have to worry about things like building insurance or repairs as they are paid by the landlord
- You can relocate as and when you want to
- You can stay in an expensive neighbourhood where you would struggle to buy the property, minus the struggle
The demerits of renting
- You have to pay a rent, which is ‘lost money’ as it does not go towards anything
- Your landlord may give you notice for any reason at any time
- Your rental payments may increase
- You cannot redecorate unless your landlord approves
What are the Costs of Buying Your First Home?
Buying your first home is one of the most exciting events of your life. Deciding to buy your home, searching for that home and then finally finding it is like an adventure. Then comes the process of securing the mortgage to bring your dreams to fruition.
We have made a short list of the expenses that you need to be aware of when buying your home.
- Your deposit. It should be 25% of the price of the property you are buying. However, if you qualify for the government’s Help to Buy scheme, then you only need a deposit of 5% of the property price.
- Your lender will charge you a booking fee for reserving your chosen mortgage deal. This is non-refundable.
- Your lender will also charge you a one-off arrangement fee for setting up your mortgage
- You will need to pay for the valuation survey on your chosen property
- You will also need to pay legal fees to the solicitors for the conveyancing of your property
- You may need to pay stamp duty on your property, if it is above a certain value. You can calculate your stamp duty here.
In conclusion
If you would like to discuss whether renting or buying is the better option, you can speak to one of our expert mortgage advisers to discuss your financial situation and your options.
Our consultation and mortgage services are completely free.