A friend’s son recently asked her for advice on whether he should buy a house or continue renting. Together we looked at the economic situation and collectively scratched our heads. Things are so uncertain for any investment today that you need the sort of risk analysis carried out by specialists such as APT (www.sungard.com) to answer such questions with any certainty.
In today’s marketplace should you buy or rent a house?
In the midst of the global financial crisis, what is the current economic situation regarding buying and renting houses or flats in the UK?
You can visit this page to find out the complex variables used and statistical modelling that is carried out by investment experts or read on to find out our layman’s perspective. Having considered the arguments in favour of buying or renting, and doing our best to get a handle on today’s UK housing market, here is what we decided...
The housing market
Since at least 2008 house prices have been low, and the latest figures suggest they have fallen another 1.5% over the last year. Most experts do not expect this situation to change in the near future. On the face of it this makes it a good time to buy.
Many house owners, however, are still asking for higher prices for their properties and simply not selling if these are not met – so many ‘good’ properties remain on the property shelf. Also with a dip forecast in the future you may be buying at a low price but you could find yourself having to sell even lower.
The lending market
Thanks to an economic policy of deliberately low interest rates, mortgages are available at very low repayment terms. Banks, however, are more cautious than ever before and loans, including mortgages, can be hard to obtain. In particular interest-only mortgages are increasingly hard to get.
House buyers can get the best deals if they can put 25% down, but that is a big ask for many. The danger of a low interest mortgage is that it lulls buyers into a false sense of security – when rates rise, repayments can become impossible to meet. This is a real danger for buyers today.
The price of entry
The cost of buying is prohibitive for many. In many areas even a modest family home is more than £250,000, which means stamp duty of £7,500 and estate agent fees, solicitors' fees and moving costs that can all add up to £15,000 or more. This is, of course, before you even consider the possible 25% deposit needed to secure a good mortgage deal.
The long-term view
Despite this, the latest research still indicates that getting on the property ladder will result in huge financial benefits over a person’s lifetime. Over a typical 50-year mortgage period the savings from buying rather than renting will equal nearly £200,000.
Buying a property, paying for mortgages and maintaining your home will cost an average of £429,000 over half a century. Without even factoring in the final value of your home, this is much less than the costs of renting over this time, which will average £623,000. It may be cheaper initially to be a tenant but in the long term the costs rack up.
You certainly need some savings behind you to get on the property ladder. Today you can take advantage of low interest rates and house prices but you need to plan for your investment (house) to lose value in the first years and for your repayment commitments to rise.
By buying a house, you will, however, definitely save big time in the longer term. If you seek stability and are happy to stay put for a few years, buying a house is a great option – if you need flexibility and do not have savings right now, keep renting, enjoy your freedom and keep placing money away for when the time is right.
Why would you consider buying a house?
The housing market today
Read the latest expert analysis of what has and will happened to the housing market
Should you buy or rent
Find out what Zoopla says about the pros and cons of buying versus renting
Financial considerations of buying or renting
Consider a personal finance perspective of the effects of buying or renting