How do I know if I should buy a house or flat or continue renting?
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I would like some information on the pros and cons of renting vs buying in central London at this time.
simond55
1 year ago
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
There are three factors involved when comparing renting with purchasing: personal power, potential long-term advantage, and cost.
There is no doubt that a property owner has greater power over what he or she can do in a property than does someone who rents. Although there are are likely to be restrictions on what you can do in an owned flat (because of the management rules of the property) you don't, for example, have to ask permission to paint the walls or hang a picture, or to buy a better cooker; you don't have regular inspections or have paid a deposit that you may not get back.
The potential long-term advantage of owning a property is that you have an asset that we expect to increase in value, eventually owning it outright. It is therefore not only a place to live in now, but is an investment and a place that you will be able to live in 'rent free' in the (distant) future.
The final financial issue is the cost and affordability of purchasing, and here you will need to make your own calculations. But I suspect the overall costs will not differ very much unless, of course, you are living in very cheap rented accommodation.
The last part of your question relates to timing. Nobody can foresee the future and, although another housing crash is currently thought unlikely, in the short term property prices can move in either direction. It seems to be a good time to buy but, at any rate, with house ownership being a very long-term strategy whose main aim is to provide you with somewhere to live and whose secondary aim is as an investment, I see no reason to wait for things to 'improve.'
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There is no doubt that a property owner has greater power over what he or she can do in a property than does someone who rents. Although there are are likely to be restrictions on what you can do in an owned flat (because of the management rules of the property) you don't, for example, have to ask permission to paint the walls or hang a picture, or to buy a better cooker; you don't have regular inspections or have paid a deposit that you may not get back.
The potential long-term advantage of owning a property is that you have an asset that we expect to increase in value, eventually owning it outright. It is therefore not only a place to live in now, but is an investment and a place that you will be able to live in 'rent free' in the (distant) future.
The final financial issue is the cost and affordability of purchasing, and here you will need to make your own calculations. But I suspect the overall costs will not differ very much unless, of course, you are living in very cheap rented accommodation.
The last part of your question relates to timing. Nobody can foresee the future and, although another housing crash is currently thought unlikely, in the short term property prices can move in either direction. It seems to be a good time to buy but, at any rate, with house ownership being a very long-term strategy whose main aim is to provide you with somewhere to live and whose secondary aim is as an investment, I see no reason to wait for things to 'improve.'
Expert Financial Adviser Answer
Richard Salter
answered 1 year ago
An answer i gave to another enquirer with a similar question follows. I would however add that with a mortgage comes the costs of maintaining the building and its repairs which typically fall to the landlord if you were renting. The fact that mortgage repayments are typically spread over 25 years and you will not be able to confidently say you can afford such a lengthy commitment is less of a problem as renting or repaying a loan still requires a regular monthly outgoing from you.
From a monetary point of view it is almost certainly much cheaper to buy a house than to rent. After all despite taking on a frightening amount of mortgage borrowing you should eventually pay it all off and be left with a real tangible property which you own outright. Historically it should also be worth (far) more than you paid to buy it. By contrast if you choose to rent you will never own your property and thus will have to rent until the day you die! A number of surveys have shown exactly how much more you will pay to rent over your lifetime than to have bought!
Even if your circumstances change and you end up not being able to pay all of your mortgage off you should still, hopefully, find that you have at least some equity built up over time to show for your mortgage payments.
There are of course other factors at play such as job mobility and maintenance costs which favour renting compared to the security of ownership and freedom to decorate as you like which favour buying. In my experience it is also often cheaper to buy via a mortgage than to rent the same property - in other words you may well find you are paying less every month to buy than to rent the same place - certainly as time ticks by this will be the case. Think about it. If you have reduced your mortgage to £50,000 on a £200,000 house the monthly repayments will be far less than renting a similar sized property. Indeed as a professional adviser I have often found that people pay less for their mortgages than they receive back in rent.
Finally not only will you be renting for life but those rents will rise (every) year - perhaps as your ability to meet ever rising rental costs reduces especially once you retire. Meanwhile those who have bought have typically paid off their mortgages by the time that they retire and so face reduced living costs compared to those who must still pay rent.
If this is an investment question then matters may be different. Renting avoids maintenance costs, estate agent and lender fees, letting fees and gas safety inspection costs etc and leaves capital free to invest elsewhere where it might perform better. Certainly, as we should all be very well aware after recent events, property can (and does) fall in value as well as rise. You should therefore not mix up buying as a home to live in with investment. However you may be lucky and enjoy both!
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From a monetary point of view it is almost certainly much cheaper to buy a house than to rent. After all despite taking on a frightening amount of mortgage borrowing you should eventually pay it all off and be left with a real tangible property which you own outright. Historically it should also be worth (far) more than you paid to buy it. By contrast if you choose to rent you will never own your property and thus will have to rent until the day you die! A number of surveys have shown exactly how much more you will pay to rent over your lifetime than to have bought!
Even if your circumstances change and you end up not being able to pay all of your mortgage off you should still, hopefully, find that you have at least some equity built up over time to show for your mortgage payments.
There are of course other factors at play such as job mobility and maintenance costs which favour renting compared to the security of ownership and freedom to decorate as you like which favour buying. In my experience it is also often cheaper to buy via a mortgage than to rent the same property - in other words you may well find you are paying less every month to buy than to rent the same place - certainly as time ticks by this will be the case. Think about it. If you have reduced your mortgage to £50,000 on a £200,000 house the monthly repayments will be far less than renting a similar sized property. Indeed as a professional adviser I have often found that people pay less for their mortgages than they receive back in rent.
Finally not only will you be renting for life but those rents will rise (every) year - perhaps as your ability to meet ever rising rental costs reduces especially once you retire. Meanwhile those who have bought have typically paid off their mortgages by the time that they retire and so face reduced living costs compared to those who must still pay rent.
If this is an investment question then matters may be different. Renting avoids maintenance costs, estate agent and lender fees, letting fees and gas safety inspection costs etc and leaves capital free to invest elsewhere where it might perform better. Certainly, as we should all be very well aware after recent events, property can (and does) fall in value as well as rise. You should therefore not mix up buying as a home to live in with investment. However you may be lucky and enjoy both!
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
other considerations will also link back to how long are you likely to live in the area? relocate for work (by choice or redundancy)?
owning can have a downside in terms of not being able to swiflty relocate as well as the upside of eventually owning debt free.
sometimes it can come down to personal choice if there is no significant difference between the cost of renting/buying.
often renting can be a good first step to trial a certain neighbourhood you are not familiar with - it can be less costly to break a tenancy than sell a property in what has become an undesirable area. of course the opposite is true. look at how many london boroughs are now tagged "up and coming" but more than a decade ago you might drive through with the car doors locked!
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owning can have a downside in terms of not being able to swiflty relocate as well as the upside of eventually owning debt free.
sometimes it can come down to personal choice if there is no significant difference between the cost of renting/buying.
often renting can be a good first step to trial a certain neighbourhood you are not familiar with - it can be less costly to break a tenancy than sell a property in what has become an undesirable area. of course the opposite is true. look at how many london boroughs are now tagged "up and coming" but more than a decade ago you might drive through with the car doors locked!