Six and two threes? (Buying vs Renting)

Member Name: DarkestGrey

Product:	Buying vs Renting
Date:	29/12/08 (88 review reads)
Rating:

Advantages: Rent for flexibility. Buy for security or control.

Disadvantages: Rent can be expensive. Mortgages can be hard to get.

When it came to getting my house, I was faced with same question many face: Should I buy or rent?

Actually there is a middle ground, but first of all it is important to be aware of the disadvantages of both renting and buying.

Buying
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There are significant advantages to buying. Firstly, you get a mortgage and make interest and repayments. When the length of the mortgage finishes you own the house, usually after 25 years.

No landlord is there to terminate your contract or put your prices up suddenly. You can modify your house without permission from your landlord and you can choose to sell when you want.

On the negative side, you have some big fees when you buy. You will probably need to pay a solicitor, same day banking charges, council search fees and the list goes on. Not to mention the large amount of stamp duty that you may possibly also have to pay.

Mortgages also usually come with arrangement fees and these can be quite large at the moment. My mortgage company has put their fees up from £295 two years ago. Now it is £9995. And that is not a mistype - almost ten thousand. That is a more extreme case, but £600 or 1.5% of the value of the house seem to be much more normal now. Note that mortgages do have fixed lengths on their offers, usually 2, 3 or 5 years. To get back on their best deals, you will need to pay an arrangement fee again. If you don't, you will go onto their standard rates which are usually higher per month but have no arrangement fee.

Renting
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On the other hand, you could of course rent. There are some significant disadvantages to this.

The landlord can set the prices and readadjust them at any time your contract ends. Some contracts can run for a year or two, but many are initially 6 months.

Like mortgage arrangement fees, you will likely have to pay a bond which you should get back but in many cases you will not. One friend of mine lost £300 of his bond to pay for a window cleaner and a gardener since the garden was 'overgrown' and the windows were 'dirty'. They probably were, since it took over two months for the estate agent to send someone around to inspect the property. Since he hadn't any keys to the property, he couldn't access the electricity to cut the grass, nor could he get to the water. Nor should he have had to do these jobs on a house he was no longer paying rent on, but this is too common a story.

At £150 to cut some grass or clean some windows for a modest house, I am in the wrong job.

Renting a property means you cannot easily make any modifications to a house. Redecorating means asking for permission. Putting holes in the wall to hang some pictures may require permission.

One property I looked at was going for a particular price but badly needed decorating. The estate agent actually advised me against this because some landlords will 're-evaluate' the house with new decorations and put the price up accordingly when you come to renew your contract.

A good tip given to me was if you are renting, the property must be exactly as you want it before you start renting since it isn't worth changing afterwards.

Gas, electricity, telephone suppliers and many other items are dictated to you by the landlord. You may be able to change some of these but again you may need permission.

As a positive, if an attached item linked to the house breaks, the landlord will be responsible for the costs. Perhaps a roof tile blows off in the wind or your boiler breaks down. A repair or replacement will not cost you anything as it is the responsibility of the landlord, whereas if you were buying, you have the burden of the cost.

The Middle Ground
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There is a third option which seems to fall somewhere in the middle.

This is an interest-only mortgage and this is how they work: You 'buy' the house and borrow the money from the mortgage company. In this way, you get all the benefits and disadvantages of buying your own home. You can redecorate, build an extension and so on.

However, when you make your payments, you only pay the interest on the loan and you do not make any repayments. After the 25 years has finished, you still owe the same amount to the mortgage company as you haven't paid for the house (you paid interest, but no repayements).

You are in effect, renting your property from the mortgage company.

One large advantage is that you can choose to buy the house at any time. You can often begin to make overpayments which start to buy you the house. At the end of the contract, you have the option to buy the house and this price was set at the beggining. So if you borrowed £100,000 today; after your 25 years of interest payments you still only owe £100,000 even if your house is worth much more.

Overall
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Each person will have different needs. For someone who moves with work regularly or just likes moving, you will probably find renting being the best option.

People who like the security of owning their own home and being in control will probably prefer the route of getting a mortgage. People who want to stay in a property for a large number of years will want to try this route.

With house prices dropping at the moment and mortgage lenders being restrictive, many people will find it difficult to get a mortgage. Of course, don't give up, keep saving since the money will always be helpful. Another person I know had savings but the estate agent would not allow her to get her house on monthly payments for rent. She paid 6 months up front and problem solved. Now she pays monthly. Only with savings could she do this.

Everyone will be different and what is best for one person will be worse for another.

Summary: Choose for yourself, but research all the pros and cons first.