Should I buy a house or carry on renting?
I'm a 23 year old first time buyer looking for a house in West Yorkshire. I have savings of £10,000. Is now a good time to buy?
The main reason for buying a house is to provide yourself with a place to live, with the investment aspect being an important secondary consideration. Assuming that a mortgage will be available to you, and that it will be big enough for you to be able to buy a modest property, some of the things to think about are:
1. Can I afford it? Having determined the size of the mortgage you will need, it is wise to do carry out a budget, to make sure that you will have enough income to service the loan and to run the house - talk to relatives or friends with similar properties to get a realistic figure - then add 10%. Don't forget to take proper account of potential increases in mortgage rates, and also don't forget that, at 23 years of age, you are entitled to commit some of your income to fun.
2. Am I likely to stay in the area for a few years? If you may move around a bit, then having to sell a house will be financially unviable: there are costs involved in both buying and selling, and even in a strong housing market if you sell and repurchase too rapidly (say within 6-12 months) you are unlikely to recoup your costs. And it would be a pain to have to do so!
3. Is it a good investment? This, I guess, is what your question focuses on, and it is not something that anyone can safely answer. I suspect that the answer is probably 'yes', with the balance depending upon your answers to the above two points, and the amount of rent you are paying. Whilst some people are predicting further falls in house prices, local areas may experience increases. If you have enough money to obtain a mortgage and to move in, do not try to pinpoint the time too closely - in the long run, as long as historical patterns re-establish themselves, house purchase is a very sensible alternative to renting. | 01.03.11 @ 17:53
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!
| 01.04.11 @ 15:39
Another thing to consider is that when you own the house, even whilst you are repaying the mortgage, you can decide how to decorate it and how to live in it.
This alone can be a big bonus to the occupants rather than having to ask permission from a sometimes faceless landlord.
ultimately it comes down to choice and freedom. as a renter you can up sticks and move at the drop of a hat with relatively little delay but you must obey the landlord's rules. as an owner it might be a more considered decision to move or relocate but whilst in your home you can decide how to furnish, where to put shelves and picture hooks, when to remove that stud wall to create a through room (assuming no planning consent needed).
in the UK we take a different view to housing tenure compared to most of Europe, whereas we are by majority a nation of home owners (mainly due to the right to buy movement started by Margaret Thatcher in the 1980s) in Europe they are mainly nations of renters but curiously not nomadic, they often tend to rent the same home for many many years, in the whole longer than the average home owner in the UK.
I have lived in only a handful of homes during my life but i know people of the same age group that have lived in dozens ! itchy feet syndrome! | 01.04.11 @ 18:34