Before the current problems with the UK property market began, the rent versus buy question wasn’t really brought up. Simply because the mindset was, ‘if you can afford it and you’re going to stay long enough to recoup the transaction costs you buy’.
As a society, the belief was that house buying was simply what normal people do. Home ownership has traditionally been what everyone dreams to do once they have a stable job and family. Anyone not wanting this was assumed to be either transient or not able to measure up financially.
Financially, house buying was never better because over time the value of your home would escalate.
The housing crisis changed all of that.
How should you choose?
If ‘’not buying a house’’ for fear of falling prices makes sense then it also makes sense never to buy something such as stocks, since they also have the ability to decline. That’s not good logic for either stocks or houses. What falling prices of any kind teach us isn’t that it’s nonsense to buy – it’s that it’s nonsense to speculate. You will never be able to speculate what happens in the UK property market, and those saying they know are just guessing.
Here are a few rules to consider if buying in the UK:
1. Buy only if you’re confident you’ll be staying for at least five years:
That’s because buying property in London has very high transaction costs, the longer you own it, the more likely you are to make money from it.
2. Hope for appreciation, but don’t count on it:
You’ll gain equity in your house by paying off the mortgage, especially if you have sourced the best mortgage deals. You’ll gain additional equity via appreciation over time. But the beauty of a house is that it’s an asset that you live in. Making a home into something that reflects you isn’t something you can take to the bank, but it is rewarding.
3. Be your own boss:
The average house in 1950 was less than a few square feet. Today it’s more than twice that. Whatever you decide to buy, you’re going to have to furnish, heat, cool, and maintain. With renting the landlord has to deal with this, this may seem like an advantage but you are likely to hear many stories of tenants whose living qualities haven’t been met, whereas, with the help of buying agents, you can successfully monitor the maintenance because you live there.
4. Wait until you’re ready:
If you have bad credit and as a result are forced to take on a high-interest mortgage it will cost you considerably over the life of your loan. Also, the more money you put down the less you borrow and the less risk you take. Instead be patient and wait for a while, so you can take advantage of the best deals.
Consider the factors above. If you don’t feel that you’re ready to own there’s certainly no shame in renting. But if you do feel like you’re ready, it would be a fantastic idea to go for it.