Buying vs. Renting

Buying vs. Renting In The UK

In the UK, housing prices are still much more expensive than they were in our parents and grandparents' generation. The average cost of rent is also very high. Making the rent vs buy choice a critical financial decision, signifying an important crossroad in your life. 

If you are asking the question ‘Should I rent or buy?’, then this article will bring you through the basics of the rent vs buy arguments. For more detailed advice, reach out to The Openwork Partnership today and book a consultation. 

Understanding the Basics of Rent vs Buy:

With both rental prices and property purchase prices on the rise, it is difficult to decide between rent vs buy. 

Renting will give you more flexibility as well as fewer financial commitments. Buying is a long-term commitment but with the advantage of owning your property once the mortgage is paid off. 

Buying your own home also comes with additional benefits, such as adding property assets to your investment portfolio, building up equity through your home ownership, and giving you the option to leave an inheritance for your children. 

On the other hand, renting is less likely to incur costly financial charges for maintaining the property you live in or paying extra homeowner taxes. 

If you are unsure which one will benefit you the most, reach out to a financial adviser and let them do the hard work for you, providing you with personalised advice on the complexities of inheritance and property tax. 

Evaluating Your Financial Readiness

The great thing about renting is that you do not need to have a big financial commitment. Indeed the most you are likely to pay is a deposit on any new property you decide to rent. But, when you decide to purchase a house, there is a lot of preparation you need to do to evaluate your financial readiness. 

1. Upfront costs. Do you have enough capital for a down payment and solicitors fees? Do you have enough monthly income to afford the mortgage payments, as well as save money for an emergency fund, income protection and life assurance, pension, and other investments? 
2. Do you have a good enough credit score? What sort of mortgage will you be offered based on this? 
3. Can you afford to keep your lifestyle as it is? Can you cut down on additional spending?

Renting means not needing to worry about your credit score, nor are you tied to one place. You have much more flexibility overall. However, renting is more expensive than buying a house in the long term. 

Long-Term Impact of Renting vs Buying on Your Finances

Whichever path you decide to take, both have long-term financial implications. We have a summary of these impacts below: 

Equity Building vs. Flexibility

By owning a house, you can build up equity over time, which increases further as property values rise. On the other hand, renting is much more flexible, allowing you to move with very short notice. You also benefit from knowing exactly what you are paying each month, as dictated by your contract. 

While owning a home gives you less flexibility in the ability to move house, renting can sometimes feel like you are investing in a property that isn’t yours. 

Long-term cost considerations

In the argument of rent vs mortgage, renters can escape the long-term commitments of mortgage payments as upfront costs are often much lower. Yet, owning a house should become less expensive over time, especially if you decide to re-mortgage with a better credit score down the line. 

Homeownership does incur costs involved with maintenance and mortgage interest rate increases. On the other side, rental prices are likely to rise on an annual basis, as well as council tax and other utilities. 

Investment Opportunities

Homeownership can be expensive, therefore renting a home could be a better alternative for anyone wanting to invest in high-risk, high-reward opportunities. With more liquidity, renters can invest easily in the stock market, bonds, or even a REIT. Homeownership can be a blocker to these types of investments as your liquidity is tied up in your mortgage. However, owning a home is itself an investment, and it gives you the benefits of real estate appreciation. 

Tax Implications

When you sell the house, you might be exempt from capital gains tax depending on the circumstances.

But, when you own a home, you are also subject to other taxes that renters do not face. For example, property taxes, stamp duty when buying, and inheritance tax if you already inherited a property from a family member. Both renters and homeowners have to pay council tax. 

Conclusion:

The main takeaway from this article is to make sure you are evaluating your finances realistically and understanding what your future financial goals are. The decision to buy property over renting is a big decision to make. You need to consider both options to understand which one fits your lifestyle. 

Making this choice can be a big life decision. The Openwork Partnership has a team of professional expert advisers to assist you with all your financial needs. Get personalised advice and find an adviser near you today. 

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE