Should You Rent Or Buy Your Home?
Over the past 20 years, the price of housing has increased faster than our wages. To compare, in 1997 55% of 25-34 owned their homes, today it’s closer to 34%, according to the Institute for Fiscal Studies.
As UK rent prices went up 12.1% in 2022, the ability to put money aside to buy their own place is getting harder for first-time buyers.
This begs the question – should you rent until you can afford your dream home or simply get on the property ladder as soon as possible?
Whilst some may not have any other choice but to rent, those that are fortunate to have the choice of buying or renting must choose carefully to ensure they’re getting the most out of their money and living situation.
I bought my 1st property last year. Read more about what I learned in the process here.
What to consider when buying or renting a home?
If you’re debating whether you should find a property to rent from a landlord or purchase your own home, consider these:
* Is it the best time of year to purchase a home?
It’s best to buy is in winter. People are desperate to sell by the end of the year and you may be able to get a better deal. Additionally, if the place has seasonal mold or other cold-related faults, winter is when you can see it better.
* Are the bank interest rates favourable for borrowing on your mortgage?
It’s often to wait 6 months to 12 months if you think you can lock in a better mortgage interest rate.
If the answer to any of these questions is no then maybe it’s time to contact a real estate agent to help you find a property to rent for a bit longer.
The advantages and disadvantages of renting
Advantages of renting:
* Straightforward and speedy process
* Lots of property choices
* Freedom with your finances
* Flexibility to move to a different type of property or to a different area
* Fixed rent amounts allow you to budget easily (no major work or repairs fees).
Disadvantages of renting:
* Can be evicted at any time
* Lots of rental rules to follow like no pets etc
* No financial incentives or capital/asset building
* Your landlord might decide to increase your monthly rent when your lease is up for renewal
* You can’t redecorate without the approval of your landlord.
The advantages and disadvantages of owning a home
Advantages of owning a home
* You will have the security of a home without the risk of a landlord booting you out
* In the UK, people pay less mortgage than rent (unless, of course, you buy a big house)
* A home is a financial asset that contributes to your wealth (homes usually increase in value)
Disadvantages of owning a home
* Home ownership is more than just paying mortgage and bills. If you are a leaseholder in the UK, you also have to pay ground rent, service charges and major repairs fees. If you are a freeholder, you should fork out building repairs costs and insurance.
* Homeowners are subject to the housing market and price movements. If the value of your home drops below the mortgage you secured on it, you will be in negative equity. This may means it may be difficult to remortgage at the rate you expect and you may have to sell your home at a loss.
* Selling a home can take time, which means it can be difficult to move quickly
So, is it better to rent or buy in 2023?
Both renting and mortgage prices are rising, so it ultimately comes down to your financial position and preferences.
If you can afford to buy, and you buy at a reasonable price, it will give you greater equity on a home which will provide a return on investment down the line.
However, if you’d prefer to have full financial freedom then renting is the way forward. You can always move to a more affordable neighbourhood to save more. This way you won’t be tied down to years of mortgage repayments which means you can move and live as you please.