Written by Jonathan Rolande, National Association of Property Buyers.
It’s a question I am being asked on an almost daily basis: am I better off renting or buying right now? Now, many people are sadly not in a position where they can choose – not least because the housing market has a lack of supply which has pushed up prices.
Prices remain high despite interest rates increasing quickly and adding to the cost of a mortgage. It means those that are considering a purchase are rightly questioning whether now is the best time to buy and what the financial and other differences might be.
Before we look into that, it is essential to look at the property market in general and where it might be going in the coming months and years. In truth, nobody can say for sure but some things are, shall we say, very likely to happen, if not absolutely certain.
Capital growth, the difference between the price paid and its value is a significant reason many opt to purchase as soon as they can. Prices have been rising constantly for almost 15 years. The wage-to-price ratio has rocketed from a modest 5 times income to 1o-times, in London more like 14-times in short, almost everybody who has bought a property since 2009 has made a significant amount of money and had a home.
But is that about to change? There has been a gradual erosion of prices over the last year and many – almost all – of the economic predictions are at best gloomy. The big question is, will it continue or will the market prove more resilient than many fear? Nobody can tell you with any true confidence the answer. As far as capital growth goes, it is for each person to decide their own willingness to take that risk, and their own ability to pay a mortgage if rates rise further.
But a property isn’t purely an investment, it is a home.
There are plenty of reasons why renting or buying has other benefits and drawbacks.
And here are what I believe to be the most important things to consider if you are deciding between renting and buying.
- Time. Once you have found a rental, you can complete all the paperwork in a matter of days and move in. Buying takes months, and even then, nothing is certain until the very last minute.
- Cost. Tenants pay no fees, just rent. Buyers pay solicitors, mortgage admin fees, searches, surveyors – a long list that adds thousands to the price.
- Interest. With rates climbing fast, the interest on a mortgage is often much the same as the equivalent rent. Just like rent, interest is dead money and does nothing to help purchase the home.
- Values. Prices may rise or fall. It’s a gamble if you choose to buy and a gamble if you choose not to.
- Security. Most tenancies are for a set time period. You will be at the mercy of the landlord who can ask you to leave once this agreed minimum is over. Most tenants feel insecure in their homes.
- Rent increases. Rents have risen sharply and may continue to do so. Many landlords try to recoup additional costs this way. Others choose to increase just because they can.
- Repairs. Tenants get the best deal here. Almost all repairs are the landlord’s responsibility. A homeowner has to pay for all repairs.
- Neighbours and other issues. Tenants have far more freedom to leave quickly and easily at the end of the term so if they don’t get on with the neighbours or don’t like the area, it is less of an ordeal to move.
- Safety. Rented properties have far stricter safety rules than privately owned homes. Tenants benefit from gas, electricity safety checks and fire safety measures that owners have to pay for – most don’t.
- Lifestyle/work. The short-term nature of renting, which makes many tenants feel insecure, can also be a benefit for those who do not want a long-term commitment perhaps because of their work or relationships.
- Tax breaks. If a large profit is made on a home when it is sold, the entire gain is tax-free, a huge potential benefit that tenants miss out on.
So, is it the best time to rent or should you buy? Ultimately, the right decision is, as always, what’s right for you and your circumstances.