Buying a property is almost certainly going to be the biggest financial commitment anyone makes. But how does the cost of living compare if you are a tenant or a homeowner with a mortgage?
For many people owning their own home is essential. In this country renting has traditionally been seen as an option for students and young professionals who need flexibility and also the ability to save up for a deposit for that all-important mortgage.
To Rent or Buy?
For most people the ultimate aim is to buy. The potential uncertainties of renting don’t appeal to families. The associated costs can add up to scarily high numbers but buying and taking on a repayment mortgage does mean that, if all goes well, you will own your own home outright at the end of the mortgage period.
Not only will you no longer have to pay the mortgage every month, but you will own a sizeable asset that will help to bring security to the family finances.
By comparison, renting long term means you have nothing to show for it in the end, despite possibly paying many, many thousands of pounds in rent.
In recent times, however, renting has become more popular as more people find it difficult to get on to the property ladder. Renting does have its own benefits that might have been overlooked in the past.
One of the obvious financial benefits of renting is that you don’t need to save up for a big deposit. In the current financial climate the best mortgage rates are available to borrowers with the biggest deposits. If you live in one of the more expensive parts of the country for property, and need 25% or more of the house price as a deposit, this can mean having to save up tens of thousands of pounds, which is no easy feat.
Buying a property also means paying legal bills, surveyor fees and possibly stamp duty if your new home is above the threshold – all upfront expenses that you avoid if you are renting.
As a tenant you will need to give a deposit to your estate agent or landlord, but this is generally a number of weeks rent, say four or six, instead of a huge lump sum.
As a homeowner you will have sole or joint responsibility (with a fellow freeholder) for the upkeep of your property. It is wise to build up a contingency fund to pay for repairs. Ongoing maintenance may seem expensive but can save money in the long term. An annual check on your roof and gutters, for example, might spot a potential problem before it develops into a damaging leak.
By comparison, being a tenant means you are not responsible if anything goes wrong with the property. A potential financial disaster, such as repairing a leaking roof, won’t have to be paid for by you but by the owner. The same goes for maintenance issues, though you do of course have a responsibility to keep the property in good condition.
Rental properties can come furnished, which also means you don’t have to buy furniture. The cost of sofas, tables, chairs, beds, wardrobes and chests of drawers can quickly add up. Then there’s all the multitude of smaller things that a home also needs. Buying items such as a toaster, kettle, crockery, pots and pans can be expensive. White goods are generally included in both furnished and unfurnished properties, which saves you having to splash out on an array of kitchen appliances.
If you need to kit out your own new home with white goods then a washing machine, dishwasher and fridge freezer can easily cost more than £1000 at a time when you have other major expenses to juggle.
The general cost of renting and buying will largely depend on where you want to live, with prices fluctuating wildly between different parts of the country and within towns and cities.
Renting gives you plenty of flexibility in terms of where you stay, for how long and with how many people. It may be possible to rent in a cheaper area which allows you to save up for a deposit for your own home. Alternatively, you might flat – or house – share with a larger number of people to be able to live in a nicer area than you might otherwise be able to afford.
For example, a cottage in the countryside might be out of your price range, but renting a house there with others may well be affordable.
Due to the costs of buying and selling, renting is particularly attractive for younger people who have not yet settled down. If you want to explore living in different cities, need to move for your job or are thinking about a career break to travel then the flexibility of renting is ideal.
The appeal of buying, however, is strong for most people and ultimately likely to be more cost effective in the long run, especially if your property goes up in value.