The decision on whether to rent or buy a house is a big one, whatever your circumstances.
Perhaps you’ve been renting for some time and are desperate to get that first foot on the property ladder.
Or maybe you own a property already but need to move to a new location and are pondering whether to rent or sell up and buy another home.
Here, we’ll look at the pros and cons of both renting and buying, run through the things you’ll need to consider before you buy and examine whether now is a good time to purchase a home…
When is the best time to buy a house?
Although there are good and bad times to buy a house, whether you do so or not will largely depend on your own circumstances.
A property market with a lot of properties for sale, but very few active buyers is usually a good time to buy as sellers are likely to accept lower offers in order to get their properties sold during quiet periods.
However, markets with fewer properties for sale but lots of buyers searching usually drives up the prices of homes that are on the market, meaning you could end up paying more.
Whether or not it’s a good time to buy will depend on your ability to finance a property purchase, as much as how the market is performing at the time.
Is it cheaper to rent or buy a house?
Should I rent or buy? It’s a question many people ask themselves before deciding whether to take the plunge on a property purchase or take on a tenancy agreement.
Renting has always generally been considered a cheaper option than buying a property.
After all, when you buy you need to save a large deposit, you’ll have mortgage payments to make and you’ll almost certainly be looking at buildings and contents insurance, as well as life cover – all of which carry varying monthly payments.
However, there are some areas of the UK where buyers are paying less than renters, according to research from Zoopla.
The 10 places where Zoopla established it was cheaper to buy a home were all in the north and Scotland, though, while the portal only took in to account mortgage payments versus rent payments and not other costs associated with renting and buying.
Here in the South West, renting is largely considered to be cheaper than buying, but that doesn’t always mean taking on a tenancy is the right thing for you.
Pros of renting
- It can be far quicker, and easier, to move quickly when you’re renting
- Finding a rental property is usually easier than finding somewhere suitable to buy
- If a rental property’s value drops, it doesn’t affect you as a tenant
- All major, expensive maintenance and repairs are carried out by your landlord, with no cost to you (unless you are responsible for something going wrong)
- Rental payments in the south west are usually lower than mortgage payments, meaning you may be able to rent a bigger property than you could afford to buy
Cons of renting
- All of your rent payments go towards paying off your landlord’s mortgage rather than your own
- If you rent for your whole life, you’ll pay rent for your whole life, compared with owning your own home outright once your mortgage is paid off
- If your landlord decides to sell up, you’ll have to move out after a notice period
- Your landlord is in charge of telling you what you can and can’t do to your rental property’s decoration, as well as whether or not you can keep a pet
Pros of buying
- Your mortgage payments go directly to your lender, meaning every payment is taking you a step closer to owning your own home outright if you have a repayment mortgage
- Once your mortgage is paid off, you own your property and can live there with no rent or mortgage payments to make
- If property prices rise, you could make a profit from owning your own home
- Your house, your rules – meaning you can decorate as you see fit and own pets, which may not always be welcome in a rental property
- Changes you make to your home may increase its value
Cons of buying
- Buying a home comes with several upfront costs, like valuation fees, mortgage fees, solicitor costs and stamp duty, as well as ongoing costs like buildings and contents insurance and life cover, meaning it can be more expensive initially to buy than rent
- You have to pay for any repairs and maintenance your home needs
- Buying a home can take a long time because of the legal procedures required
- If you fall behind on your mortgage payments, your home could be at risk of repossession
Things to consider when buying a home for the first time
If you’re deciding whether buying or renting is the right step for you, you should consider exactly what purchasing a home for the first time entails.
Can you afford to buy?
The first question to ask yourself is ‘can I afford to buy?’
You should look at what you have saved as a deposit against the type and price of property you want to buy, as well as how affordable other moving costs like stamp duty, valuation fees and mortgage fees are.
Most lenders will need you to provide at least 10% of the property’s value as a deposit and the larger deposit you have, the lower your mortgage payments will be.
If you don’t have a big enough deposit, you may be better off renting and continuing to save for a while.
How long do you plan to stay in the area?
If you’re planning on settling in an area for the long-term, buying is a great way to lay down solid roots.
But if you’re unsure how long you plan to remain in one particular place, renting may be a better option for you.
If you buy but then need to move only a year or two later, you may need to sell your home quickly – and that is never a certainty in any market.
By renting, you may be able to move more quickly by giving your landlord the required notice.
Buying an investment property while still renting
You may have considered buying a property as an investment rather than somewhere to live, renting out your purchase while you continue to rent yourself.
This can be a good way to create an additional income, while also having an asset for the future.
But becoming a first-time landlord is not always easy, so you should consider if it’s the right thing for you to do.
Landlord responsibilities
As a landlord, you’re responsible for the health and safety of your tenants and you’ll need to make sure you cover all the legal obligations, and factor in all the costs, that come with renting out a property.
Taxes
You’ll have to pay additional income tax on any money you earn from your rental property, while the property may also be subject to capital gains tax if and when you decide to sell it.
Stamp duty
Landlords, or those who buy additional homes, pay an extra 3% in stamp duty on top of normal rates.
So, even now, where buyers currently pay no stamp duty on the first £500,000 of a property’s purchase price, you’ll still pay 3% in stamp duty up to that amount and more if you spend above that figure.
Should I buy a home now or wait until 2021?
The property market has bounced back well after the coronavirus pandemic brought transactions to a standstill between March and June 2020.
The Chancellor’s stamp duty ‘holiday’, too, has sparked buyers into life and there are savings to be made by buying a property before stamp duty reverts back to its original rates after March 31, 2021.
Property prices are still rising in most areas, but generally at a much slower rate than we’d all become used to over the past decade or so.
So, now could be a great time to buy – but, as always, it will depend on your own circumstances whether it’s the right time for you.
