Buying V's Renting Property: Pros & Cons

 Buying V’s Renting - Which is better?

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Buying vs renting - which is better? When it comes to residential property we are often taught to buy rather than rent, whether that's through a mortgage or as a cash purchase. Renting is considered a waste of money and that you’re just paying off someone else's mortgage when you could be clearing your own.

Today we will have a look at both and see which one is more financially preferable. We will look at the costs associated with renting and buying, short term and long-term benefits of each as well as the pros and cons of both. However, I will say everyone's situation is different and this is a very general viewpoint. Before making a decision make sure to get professional guidance and think about your financial position before making any commitments.  So let’s take a look at buying vs renting- which is better with the pros and cons of each.

Buying A Property

We will first take a look at buying a house. The house buying process can take anything up to eight months before you get the keys. However, just because you have started the process does not mean that you will end up with the keys to the house, it could fall through even towards the end, before the contracts have been exchanged. Plus you don’t get back any money spent on fees.

There are several stages to purchasing your home and specific costs to consider as well. Before contemplating a house purchase make sure you have the money needed for the upfront costs, such as solicitor fees, mortgage arrangement fees, stamp duty, and deposit. If you don’t have the money for the full value of the house, then make sure you have a mortgage in principle agreed before you start your search. This will speed things up when you find ‘the house of your dreams. 

Once you have found the property you want to live in, make an offer and don't go over what you can afford, stick to your financial limit. It will save you a lot of heartache in the long run. Now find a good solicitor who will work on the conveyancing for you and do all the necessary searches on the property. Plus you will need to get a survey done on the property so you know what you are moving into. They will point out things you may have missed, which you could take back to the seller and try to get a discount on the sale price of the property. 

Once the contracts have been exchanged and the searches have been completed you will get a message from your solicitor asking for the deposit and stamp duty so they can start transferring the money. Once all the money has been transferred and the contracts signed, the property is yours. Now all you have to worry about is fixing the property to how you want it and moving your stuff over to your new home. 

So let's work out how much money you will need to start with when buying a property. We will use the average UK house price of £250,000. So before you can move into your new home you will need to consider: 

As of right now (15th April 2021) there is no stamp duty to pay on a property below £500K

You will need a 25% deposit, £62,500

Mortgage fee, approximately £1,000

Solicitor Fees, approximately £1,500

Property survey, £400

Moving costs, approximately £600

Building insurance, Approximately £150

Total needed before being able to move in, approximately £66,150

Pros: 

  • You own the property and can do what you like with it (with planning permission that is)

  • You benefit from the price increase in your property after several years

  • You can rent out your property and benefit from the rental income

  • You can use it as security to get another loan

  • You can take out the equity from the house later down the line

  • You can increase the value of the property by adding extra rooms and space

  • Once the mortgage is paid off, your expenses will reduce without the fear of eviction

Cons 

  • You will need at least 25% of the deposit before you can even consider looking at the house

  • There are several other costs which you will have to pay such as mortgage fees, legal fees, etc

  • You are responsible for any repairs that need to be done to the property

  • If you want to move home then this could take anything up to a year, in some cases, you may move out before you have sold the property because it’s not selling for whatever reason

  • If interest rates go up so does your monthly repayment

Renting A Property

As the working environment changes and the needs/wants of people change so has there been a shift from buying a property to renting. The gap between buying and renting seems to be getting bigger. It's not only students and young professionals who are renting but people who have reached a high position in their career and move around a lot, many entrepreneurs rent property along with others in varying stages of their lives. So it's not just people who are struggling financially but it's also people who are well off or just starting out in life. 

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When a person thinks about a rental property they may consider the location, is it close to work, family, friends or amenities, etc. They will have a budget in mind and know what type of property they will need. Depending on the type of agreement the property may have all bills included and be furnished. These will usually be studio apartments or single-room rentals. You can also get good deals on houses if you negotiate well. The overall price of the house is of no concern as you will only need to pay for the rental and not the value of the house, so you can move into a house that you can't afford to buy and enjoy the luxuries it provides. 

Along with making sure you have enough money to rent and put down a deposit, the biggest concern of the potential tenant is making sure he/she has all his/her documents and references ready for the landlord to check. Depending on the landlord you may need either one week’s deposit or a six weeks' deposit along with one month’s rent. When looking for a place to live, consider whether you want a house share or a house to yourself. The majority of the time house shares have bills included and may work out cheaper, depending on your budget. Also, take into account when you want to move in and if the property fits around your timetable for moving, plus do you need it to be furnished or unfurnished? 

Once you have chosen and accepted the terms and agreements of the tenancy, you are ready to move in. Just because it's a rental property doesn't mean you shouldn’t get insurance. It's always a good idea to get your things insured, just in case. 

So, how much would you need to move into a rental property? We will use the average rental prices in the UK. 

Rent £900

6 weeks deposit £5,400

Contents insurance cover £160

Total to move in £6,300

Pros

  • You are not responsible for repairing the property or fixing any problems, this is something the landlord has do

  • You can move houses quickly and easily and not worry about the property once you have moved out

  • You don't need a large sum of money to move into a house, meaning you can use the money on other things

  • You don't have to pay any stamp duty on the property

  • You can move into a house which you can’t afford to buy

  • You can move into an area that is close to your workplace quite quickly

Cons

  • You don't benefit from any increase in the value of the property

  • You may be paying more in rent than if it were a mortgage

  • The rent could rise

  • You can't make any changes to the property without permission from the landlord

  • Many houses have a no-pets rule, some even have no children rule

  • Your landlord may want to sell so you have to move out

In conclusion, there are many benefits to both and not just the ones listed above. Everyone's situation is different, every moment is different. If you have enough money to buy a house and you are looking to live there with your family for the long term then buying is better but if you need a place for the short term i.e. up to five years then renting is better. Whether you are renting or buying, the first 10 years of your rent or mortgage work out the same.

Some argue that it's cheaper to rent than to pay a mortgage because when you buy you have to take into consideration the stamp duty you have to pay, all the legal and mortgage fees you have to pay, the ongoing maintenance costs, renovation costs,  garden costs all add up. Whereas if you're renting you only worry about your rent and utility bills. All maintenance/renovation is taken care of by the landlord. Yes the rent may go up but your mortgage can go up as well with interest rate changes. 

There is not a right or wrong answer as to which is better. It all depends on each individual's circumstances and what it is that you need. Will it be for the short term or long term? Renting has its place and so does buying.