Renting vs Buying. Which is best?

In today’s tough property and financial markets many First Time Buyers are considering whether to simply rent rather than buy their first home. Many European cities have a culture of renting and experts believe that if the current economic climate in this country doesn’t improve that the UK will also move towards this. Here we examine both options and try to discover which makes the most financial sense:

Buying a property

Halifax released research back in May which reported that buying a home is still cheaper than renting in terms of monthly repayments, approximately 14% on average cheaper. Of course the difficulty with a house purchase is not the monthly repayments but the hefty deposit needed to get a mortgage. First Time Buyers now need to save at least 10% of the property’s value, even more to get a good mortgage rate. This is simply unobtainable for some First Time Buyers especially those living in areas where property prices have remained healthy, such as London.  So why Buy? Well in addition to lower monthly payments you have the reassurance that you are investing your money in a very valuable asset. Many feel that renting is “dead money” and see buying as saving for the future.

Another advantage to buying is the freedom you have to renovate the property to meet your requirements, when you own your property you can make all the changes you like to it (within reason) but with renting you have to seek the permission of the landlord and may have to compromise on colours, designs etc.

Renting a property

If buying isn’t a realistic option because of your circumstances then don’t worry there are many benefits to renting.  The key benefit of renting over buying is the flexibility it offers, if your circumstances change and you need to move out quickly you can do, most landlords will only ask for a month’s notice if you have completed your minimum rental period; allowing you to move quickly without the stress of having to sell your property. Renting also gives you financial freedom and can protect you from poor housing market conditions, in a slow property market you may see a rental rise but your won’t have to worry about falling into negative equity (where your house is worth less than the loan you have on the property.)

There really is no right or wrong answer as to which option is best as it depends so much on your own circumstances. You need to consider whether buying a house if feasible and whether you have enough savings to see you through a tough period in the property market.  If your finances allow you to purchase a property and you are settled on the location you want to live then buying is a very sensible investment, especially with house prices falling or remaining stable as they have for the past few months. Equally if you prefer financial and lifestyle flexibility, renting would probably suit your circumstances better and if you are worried about losing out in the long term a pension or savings account will provide that security for the future.