The Big Decision - Renting vs Buying
The first and biggest decision you will have to make is whether buying a property is right for you.
There are alots of pro and cons to consider with both renting and buying but the ultimate decision is yours.
Advantages of Renting
When you rent a property you are tend to be tied in for around 6 months as a minimum under a short assured tenancy agreement. After this period you a free to move on with limited hassle.
When renting it is your Landlords responsibility to maintain the property and fix anything that goes wrong.
You don’t have to pay toward an asset that might lose value
The Landlord will be the owner of the property who will be exposed to changing property prices should they ever go down.
Disadvantages of Renting
When renting you are in essence paying someone else’s mortgage and normally a premium on top of that as well. As a result it can be difficult to save up should you ever want to rent a larger place or for a deposit for your own place.
If for example you don’t like the kitchen or bathroom in your rented place you wouldn’t be able to make an improvements to it without the landlords permission which they may not be willing to do.
There is no saying that at the end of a tenancy that the landlord my wish to sell the property or claim it back to live in it themselves. This would leave you in a difficult position being forced to find a new rental property at potentially short notice.
Your Monthly Payment Can Increase
Rentals can be as influenced by interest rates increasing or other factors such as the area you are renting becoming popular that might see you paying higher rents than you are currently paying.
Every Landlord is different but many will not allow pets in their properties.
Advantages of Buying
You Can Build Equity
If your home increases in value you will be financially better off and use the equity to help climb the property ladder into a bigger home.
It’s an Investment
In Scotland during the 10 year period between Financial Year 2005/06 and 2014/15 the average price of a property rose by 35% from £123,976 to £167,395.
Like any investment the value may increase or decrease and although property is generally seen as a safe investment the value can decrease with little warning.
Payment Stability – During Fixed Term
If you use a Fixed Rate mortgage you will know exactly what you are paying during that period. However this will increase to the bank's standard rate at the end this period.
Your property will hopefully be in an area you like and you can begin to get settled and integrate yourself in the area.
You have the freedom to make improvements or have pets in your home without seeking permission from a landlord. You won’t be subject to inspections so you are free to live as messily as you please!
Once the Mortgage is done, that’s it!
You will eventually pay off your mortgage, although this might be 25-30 years after you first buy a place you will be able to live out your golden years without the concern of rental or mortgage payments.
Sometimes it can be cheaper to buy than rent
Whilst you might have to pay a large cash investment upfront for the deposit and legal fees etc. your monthly payments after this could be less than what is being paid in rent each month.
Disadvantages of Buying
Your Home Could Lose Value
You are exposed to changes in the housing market and if the value of your home falls, you may be unable to sell if you owe more to your mortgage lender than your home is worth as any difference will have to be covered by you. This is known as being in negative equity and is not a good place to be!
When interest rates rise, your repayments will go up. It’s important you’re prepared for a rise in interest rates by having savings build up to cope with any future increases.
Selling and moving is expensive as you have estate agency and legal fees to pay.
It may not always be easy to sell your home, depending on what’s happening in the market.
If you’re living with someone and split up, deciding what to do with the property can be complicated and expensive.
Loss of a job or similar decrease in income could lead to repossession of your property if you fail to make payments to your lender.
You need to be sure you can afford maintenance costs like fixing a broken boiler or leaky roof.
Your Home Is an Illiquid Asset
This means that whilst the property is an investment it is not easy to get access to the cash that you are using to pay your mortgage without selling the property.
Buying a Home Requires a Cash Investment
You may not be able to save enough cash to contribute to the deposit requirements that lenders will impose.
Following the financial crisis 100% mortgages are a thing of the past. It can difficult to save up and meet all your existing financial obligations at the same time.
There are a greater number of insurances that you will need to have a result of having a mortgage to cover you should anything bad happen such as if you are diagnosed with a critical illness, lose your job or if you die before the property is paid off to ensure that loved ones are not left out of pocket.