To buy or to rent? It's a difficult decision faced by many at different stages of their lives, and there are advantages and disadvantages for each, so it's important that you make the right choice for the right reasons. In this blog we look at four different scenarios which are commonly experienced by both potential tenants and buyers across the country.
Scenario 1 - First Job
You've just started your first job and, although you don't have much in the way of savings, you love the idea of living independently and would like to get onto the property ladder.
Rent, for now at least. It's great that you've got a steady income coming in, but without a large deposit saved you'll only be eligible for top rate mortgages, which means you are likely to struggle with high mortgage repayments.
As this is your first job, it's a good idea to experience living away from home or university as a tenant rather than a buyer to begin with. This way, you'll become familiar with the costs associated with independent living, and better understand how much you can afford in terms of mortgage repayments.
Renting is also a great way to allow you to gradually increase your savings before you buy, as it's always best to put down the largest deposit you can, in order to reduce the interest rate on your mortgage. When starting any new job you should make sure you are well settled with your employer before taking on any large financial risk. Many mortgage providers ask that you have completed your probation period before accepting you, as it's important that you're happy and secure in your job before agreeing to a long term financial commitment.
Scenario 2 - Surprise Inheritance
You've always rented but have recently inherited some money which would allow you to get onto the property ladder for the first time. You have a steady job but are scared about the financial commitment involved long term.
Buy. Believe it or not, mortgage payments are often less than rental ones month by month for equivalent properties, and unlike rent, those payments are all going towards purchasing an asset. Once your mortgage is paid off you won't need to make a payment again, which will stand you in much better stead in the long term than having to pay rent every month for the rest of your life.
Saving up for a deposit is usually the biggest challenge facing those getting onto the property ladder, but if you have this to hand, then it would wise to invest it in a house when you can. Just make sure you do your research before you buy, and ensure that your property budget will allow you to afford the monthly mortgage payments comfortably, and also allow you to maintain your current quality of life. You can find out more about the risks and financial commitment involved in our blog: What You Need to Know When Buying a House
Scenario 3 - New Relationship
You're planning on moving in with your partner. You both currently rent and are excited about getting your first home together as a couple, and are both financially comfortable.
Rent on a short term lease. Although you may be in a financial position to buy, if you haven't lived together before you may be placing your relationship under unnecessary pressure by committing to a mortgage. Before buying, why not rent on a 6-12 month lease to make sure that you're both happy with your living arrangement before looking for somewhere to buy. It will also give you a better idea of how your household finances will work together, and allow you to plan a budget for buying a home without rushing into a mortgage.
Scenario 4 - Going solo
You're single and are now in a financial position to buy your first property. However, you had always wanted to buy with someone else to alleviate the risk of relying on one income. Is it worth going it alone or should you keep renting until you find someone else to buy with?
Buy. If you are in a position to buy then it's sensible to do so, even if you are relying on one income. Most mortgages advise that you take out insurance to cover you against job loss or illness, and we would always advise that any buyers do this, so you can take on a mortgage without having to worry about long term risk factors. If you decide to buy a house with someone else down the line, then you have the added advantage of having already put your money into a long term asset, which is likely to stand you in good stead when it comes time to sell up and reinvest your money into a larger property.
While owning a home may be the long term goal for many of us, it's important to make sure that the time is right. Even if you are in a financial position to buy, it is not wise to do so if you need to allow a degree of flexibility in your life; for example, if you are likely to move location with your job in the near future, or if you've just started living with someone for the first time. Equally, while renting is fantastic for accommodating life's unexpected twists and turns, your money is likely to be much better off invested in your own property when it is practical to do so.
Whether you've decided that now is the time to rent or buy, Wolf's are able to offer a whole host of different sales and lettings property options across Birmingham, Edgbaston and Harborne. If you'd like any advice on choosing your next property, then please get in touch with our City Centre or Harborne offices, and we'll be happy to help in any way we can.