To buy or not to buy?, that is the question for today's home hunters
With the property ladder becoming ever tougher to get onto, Rob Griffin considers the pros and cons of renting and buying
Saturday 17 September 2011
L auren Allchurch is facing the same dilemma as thousands of would-be home owners across the country: Should she stretch her finances and move to a cheaper area just to own a property or is it more sensible to continue renting until the global economy settles down?
The 28-year-old, who works in public relations, rents a flat with her doctor boyfriend, Jon, in Wandsworth, London. While they harbour dreams of buying a place together, they would struggle to raise the deposit required for where they would like to live.
"We couldn't afford where we are now if we'd bought rather than rented," she says. "If we're going to commit to buying a property, we'd want to look for the longer term which would mean it needing a minimum of two bedrooms and a small garden."
Although they have thought about buying out of London, they fear that committing to a long commute, especially when both have friends, as well as social and sporting activities in the capital, would put a significant strain on their relationship.
"For the time being we plan to sit tight in our flat and perhaps speak to a mortgage broker in six months' time to discuss our options," she adds. "We will then decide if we're willing to compromise on location or property size before deciding whether to continue renting or looking to buy."
It's not an easy decision. Getting onto the property ladder remains tough for most youngsters, according to the latest Changing Face of British Homes report from Legal & General, which reveals that only 18 per cent of 25- to 34-year-olds plan to take the step within the next 12 months.
That figure is even lower among the 18- to 24-year-olds with just 17 per cent saying buying a property was a priority. However, the study also highlights that the latest findaproperty.com rental index shows prices are 4.4 per cent higher than a year ago.
Problems raising a deposit, lenders being far stricter with their criteria, worries over job security and a desire not to be tied down are among the principle reasons why people appear to see renting as the most viable, longer-term proposition.
There were 22.3 million dwellings in England in 2009, of which one million were vacant, according to the English Housing Survey housing stock report, published earlier this year. Around 15 million (67 per cent) were owner-occupied with one-in-six (16 per cent) privately rented and the remainder split evenly between local authorities and housing associations.
David Hollingworth, spokesman for broker London & Country, believes the idea that an Englishman's home is his castle still holds true, but accepts this deep seated desire is being tempered by financial considerations in an uncertain economic environment.
"My gut feeling is that most people like the idea of their own property but it's down to whether they can actually afford it," he says. "The biggest challenge they face at the moment is pulling together enough of a deposit to secure a mortgage." So what are the pros and cons of each approach?
Benefits of renting
First, it gives you flexibility which can be particularly attractive if your circumstances are likely to change or there is uncertainty surrounding job prospects. Most agreements are for six or 12 months so as long as you pay your deposit and keep up with the rent then you have a roof over your head.
It also means you don't have to raise thousands of pounds for a deposit or pay the numerous fees associated with house purchases, including the costs of your solicitor's time, the various searches that have to be carried out and arrangement fees with lenders.
Kate Faulkner, managing director of website Designs On Property, also believes renting is essential if you're moving to a new area and wonders if now is the right time to buy anyway. "When you consider no-one knows what's going to happen to house prices over the next five years, anyone looking to buy and sell within that period will also be taking a risk," she says.
Matt Hutchinson, director of flat and house share website SpareRoom.co.uk, insists home ownership is a very British obsession and points out that it's normal practice in many European countries to rent rather than buy. "It also has many advantages such as giving tenants greater flexibility to move with work, relocate closer to the best schools or upsize/downsize without the hassle of negotiating the property market," he says. "Nor do tenants have to worry about expensive maintenance work on their property or their home losing value, which are common concerns for homeowners."
He also says the concept of sharing accommodation is no longer the preserve of students, citing a survey carried out among 10,000 of his site's users that showed one in eight of people living this way are over 40.
The statistics also reveal that one-in-three flatmates in the UK are over 30, one-in-five earns at least £30,000 a year and 75 per cent are educated to degree level or higher. Only 34 per cent said they could afford to live on their own if they wanted.
Benefits of buying
The first benefit is security of tenure. Owning a property means you're not at the risk of being forced to find a new home if your landlord decides not to renew your lease. For example, they may be an "accidental landlord" that is only renting it out til they find a buyer.
There might also be savings – once the fees associated with the house purchase have been stripped out – because the cost of buying a home for first-time buyers is more than £100-a-month lower than renting, according to research by Halifax. The study showed the average monthly costs associated with buying a two-bedroom flat totalled £567 in July – 16 per cent (£110) lower than the typical rent paid on such a property. This contrasts with 2008 when the average cost of buying was 29 per cent (£212) more than the average rent.
There are a number of reasons for this, according to Suren Thiru, housing economist at Halifax. "The recent decline in the cost of buying a property for first time buyers compared to renting has been substantial and reflects the drop in both mortgage rates and house prices since 2008, as well as a marked increase in the average rent paid over the past year."
There are also longer term benefits associated with buying if you opt for a repayment mortgage rather than interest only, points out Geoff Penrice, a financial adviser with Honister Partners. "At some point the mortgage will be cleared and there will be no further costs – but rent never stops," he says. People often have the objective of clearing their mortgage before they retire so their costs go down at the time when their income also drops as they move onto pension."
Don't forget the potential to make capital gains, argues Melfyn Williams, managing director of Williams & Goodwin estate agents in North Wales, who is adamant that house prices will rise over the next few years.
Buying or renting: how to decide
There are clearly pros and cons with both options so how should you choose? What factors do you need to consider when deciding whether to take the plunge – and is there anything you can do to give yourself confidence that you've made the right decision?
1. Future plans
Are you planning to be in this house for a long time or will moving jobs or having a family require upping sticks in the near term? Can you afford your dream house in the right area or is it purely a stop-gap measure? If it's the latter, then renting may be preferable.
2. Your personal finances
Have you enough for a deposit? What would your monthly repayments be if you went for a mortgage – and could you afford that without a struggle? No-one can predict the future but consider whether your job seems secure.
3. Costs of renting in your area
Compare the costs of what your mortgage repayments would be with rent for similar properties in your local area. There could be a major difference. Over the past year rental prices have increased by 4.9 per cent according to a study by FindaProperty.com
4. Have you got longer-term savings?
If you opt to rent, have you got a plan for how to fund your retirement, such as a pension or Individual Savings Accounts? Don't forget you'll still need to find money for rent when you give up work whereas house buyers will have hopefully cleared the mortgage.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Mark Dampier: Don't panic. Canny investors sit tight when the stock market falls
Shareholders can hold a company to account
Derek Pain: Dividends ease the suffering in a moribund stock market
Questions of Cash: Payment woes with Barclays overshadow Cornish holiday
Bank-beating exchange rates on your international payments
- 1 McKamey Manor: This 'extreme' haunted house is the stuff of nightmares
- 2 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 3 Watch what happened when food critics were unknowingly served McDonald's
- 4 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
- 5 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Tony Blair 'says Ed Miliband will lose 2015 general election'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Putin: The US is to blame for almost all the world's major conflicts
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village