Buying vs. Renting: The key considerations
Becoming a homeowner can fill you with a sense of pride and security; you are finally able to decorate a place in the exact way that you want, and know that in a year’s time you won’t have to haggle over a rent increase or be forced by a landlord to move out.
Becoming a homeowner can give you lots of benefits, but it also puts financial responsibility directly on your shoulders. Once you have your own home you will have to make sure you can afford to pay the mortgage over the next 20 or so years, and must be prepared should the cost increase dramatically. You also need to ensure you budget for all the extra miscellaneous costs, such as service charges, ground rent and property maintenance.
All that being said, private rents are at all-time highs, and buying your own home can be cheaper on a monthly basis than renting. However, it is only possible if you have the necessary deposit, and that may take some time to accrue.
It is important that everyone is educated on the importance of saving not just when it comes to buying a home, but for all of life’s events. We live in a society where it is easy to get credit to purchase the things we want, and sometimes saving may slip down the agenda. And, while it is possible to get credit (in the form of a mortgage) to buy a home, buyers still need to put in at least 5% of the price up front.
The size of a deposit can really make a difference to the overall mortgage costs. The current Help to Buy rates are relatively high, and my expert advice is to always look to see if there is a way to raise that extra 5-10% deposit, as doing so could almost halve initial interest costs.
Typical Rate at 95% (Help to Buy)
3.79% fixed for 2 years with no fee and £300 cashback
Typical Rate at 85%
1.85% fixed for 2 years with a £1,845 fee, or 1.99% with a £345 fee
- A £200,000 mortgage over 25 years with 5% deposit could cost approximately £1,032.62 per month
- A £200,000 mortgage over 25 years with 15% deposit could cost approximately £833.18 per month
It is my view that private rents can only go one way, and that is up. There is an ever-increasing demand for homes, and landlords now face a lot more financial pressures with the proposed reductions in tax breaks, increase in taxation and the very real possibility that rates will eventually rise from the current historic lows, thus increasing their interest costs.
It therefore seems that homeownership is the best way forward in the long-term. However, I would advise people saving money with a mortgage versus renting to put at least some of their savings towards repaying their mortgage more quickly, thereby ensuring they will be less exposed to increased mortgage costs when rates rise.
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