Renting or Buying?
 

Well, looks like I will be moving out of my parents house in the next month or two. I'm a little bit undecided about whether I should rent or buy property? I Don't really have the funds to buy a mortgage but I really hate the idea of renting as it's basically 'dead' money that you will never see again. Of course, I'd only have to pay a little extra a month for mortgage and the money would be an investment, rather than to my so-called landlord.

Which do you guys think is the better option?

if you can afford it kev i would buy rather than rent like you say it is "dead" money. if you are buying with someone else then make sure you get the right tennancy agreement.

buying is always better off and you're better gettign on the ladder as quickly as possible.

if you're throwing away X hundred quid on rent a month in makes saving up for a downpayment on a mortgage much harder.

What you need is a desperate chick quick who will move in with you within a month and also pay her share of it. You pay half the mortgage, are still legally the owner and have a free maid:-)

failing that you could look into sharing a mortgage with a mate or renting out a spare room.

Here is my suggested thought process.

1. What is the cheapest town I would consider living in?
2. In that town, how much are one bedroom starter homes going for?
3. Is that price more than 4 times my salary?

If yes........ you probably have no choice but to rent

If No

4. Go and get some mortgage quotations from the banks and see what your options are. If you don't have any money saved up, look at 100 percent mortgages, but remember, you will pay more for these with higher interest rates. Don't forget you may have to factor in stamp duty and start up costs, appliances furniture etc.

5. Consider the quotations and decide whether or not you will be able to comfortably afford the repayments. Remember, mortgages can go up unless you are on a fixed rate.

Oh, and steer well clear from the Abbey National, and make sure you consult the Nationwide. They have been excellent to me.

Hope this helps.

The thing is buying a house (or a flat) you won't pay just the mortgage. You'll have to pay more taxes (if it 's the same in the UK as it is in France or Canada), and for maintenance...
Unless it's in a place where you are the sure the prices will go up quite fast in the next few years, I'd wait to have substantial funds before buying.

Also when you rent you can still save money and you're more free to move when you feel like it.


Ponrauil

In Holland we get money back from the taxes when having a house, this is based on intrest paying for the house, and tax paid from you gross salary.
For instant, my interest (of course payable) for house is about 900eur a month, I get 350 eur back every month from the tax-authorities (this is exluding what I get back for health-care), so I end up paying about 550 for my house (exluding down-payments & insurrances)
The more income, the more you will get back. However that is likely to be changed....

Why? The chances of going in to negative equity in the UK are very slim these days.

Even if your house decreases in value (very unlikely in the UK), you're still better off than renting. If your life is stable and you know what you will be doing in the next 2-3 years, renting would be crazy and dead money. Of course there will be other bills to pay, but despite the scare stories in the press, banks will never lend you more than you can afford.

If Kev is looking for a long term strategy to eventually have a nice family house in a nice area, buying now will make him more money than he could ever save, which will in turn put him in a great position 3, 5 and 10 years down the line.

Don't forget, if you do want to go travelling or whatever you can always rent your place out for a year.

I just see mortgages as a cross to bear. The shorter the better.


Ponrauil

isn't there cost on the purchase-price in the UK?
For example, if I buy a house over here for let's say 250k, there are about 10% costs excluded, so I end up paying 275K.
So that means the price of the house I bought have to raise 10% of the purchase-price before I can make money of it

As a first time buyer paying under 250,000 pounds for a house he would have to pay 1 percent of the purchase price plus solicitors fees of around 400 pounds. If he didn't make that in the first six months he'd be very very unlucky.

If there's any way you can buy something, buy it. Renting is like flushing money down the toilet.

I don't understand why people see renting as money lost...

When I compare my situation with a lost of my friends situation, and if I stick to my plan, we'll all end up with our mortgages paid around the same time. Except in the mean time they will have had at least ten years feeling stuck with a higher mortgage, not being able to afford holidays abroad etc..., paying interests rates much higher than mine.

But then that's according to my situation... I guess everyone, considering the place they want to live in, their career, their family etc... may see things differently.

Ponrauil

i dunno man i have a mate who shares a flat with someone he works with.

it's £550 a month plus bills split between the 2 of them.

he's been there close to a year and a half. 18 months @ 275 rent a month = just under 5 grand he could have invested in a house that he'd own and be able to trade up on.

am i correct in thinking that a majority of people in france rent rather than buy?

yeah it's not money thrown away, think of the interest, that's also thrown aways and in some cases (esp in a few years again when interest will go up big time) lots more than paying rent....

No, you're not correct.

A recent study from September 2006 shows 70% of French households are landlords and that 50% of renters wish to buy in the next 5 years.


Ponrauil

...I think of rent as dead money...but mortgages are also painful!....but at least you've got something that is an appreciating asset.....and when you're a pensioner you can release the equity... (just thinking ahead;) ). If you have a spare room, rent it out.

I would also say BUY - don't rent.
I have been able to purchase a few houses that have increased in value tremendously in just a few years. My first house I paid $60,000 and sold it 2 years later for $130,000. The house I'm in now I bought for $200,000 in 1990 and it is now worth over 2 million in 16 years here - I'm blown away by how the real estate prices have gone up. That why buying is a good idea.

Kathleen

WOW. Don't get me wrong--your house is AWESOME, but I never would have guessed that. Here it would probably be $350,000. That's the difference in highly populated and rural areas!

Just curious, how much is an acre of land worth there?

of course that's 10 times the value but it only becomes money when you sell it, and then only if you buy something back that is cheaper but probably less than you living now.
Of course it's an excellent retirement if needed, sell it & go renting :)

For $2 million, she can move South and have a great house, a bigger yard, and money to spare. ;)

****ing hell, 2 million??? :o

Well I would have loved to have bought, but the only thing I could really afford on my own would have been a 1 bed flat in a run down area. The only other I could have done is bought with a friend but I really didnt want to share. So instead I rent a two bed house, the rent is alot chaper than a mortgage so I can still save. It works for me, I really dont know how single peoiple can afford to buy in this country it is a nightmare. I should have bought 5+ years ago when decent houses were going for peanuts.

Kev in your position, unless you are going to buy with someone else I dont see that you have much option but to rent...

I was renting an apartment for just under a year but as you've already mentioned, the downside to renting is that you're paying money each month to live there and don't have anything to show for it. I spent quite a bit of time looking for my current flat but managed to get it at a really good price because it was a repossession...it's needed quite a bit of work doing to it but has definitely been worth it.

You cant. I'm in a good job, great wage... and still would only afford to buy a shithole in a crap area.. and even that would be out of my price range.


I'm waiting until i'm either in a steady, happy relationship, i rob a bank or win the lottery before i start looking for a place to buy.

it sucks for our generation in this country trying to buy a house in your 20s is way beyond most people . the average age of 1st time buyers is around 34. we need major affordable house building projects all over the country.

Around here - there really is no price on an acre of land. Very few properties have that much land. A few towns away in Saddle River the minimum lot for building is 2 acres. It is a very exclusive community that Presidents retire to (Nixon lived there) and wealthy movie and TV stars live there. It used to be farm land which is why there is more room. The starting price there - on a dump of a house though is over 5 million. These days people buy old farmhouses for a fortune there and then bulldoze them and build Mc Mansions.

As I said though - real estate is a good investment (if you can afford the inital investment) because there is usually a good rate of return - even if you don't improve the property.

This area is less than 20 miles from New York City and the train station is 3 blocks from my house. You can be in Manhattan in 1/2 an hour. That also makes the area quite convienient and valuable. You have all the advantages of the city without actually living there. If you think the prices are high here - you should price a 2 bedroom condo in Manhattan. It's nuts.

Kathleen

I am renting, and as quite a few people mentioned, I can't even think how I would manage buying a house and paying the mortage by myself... It's impossible!

I am living here for 4 years now, and of course it's dead money, I am deadly aware of that, but being single (again) I can't imagine buying something, not knowing what the future will bring. I live a 5' walk from work which is sooooo good, but I would love to live in the country in the middle of nowhere between the cows and such...

So renting it is, or I should maybe get another freakin" well paying job... still... wheh I love what i am doing now:D

LeEnTjE

Good lord!! How big is your house???

Thank You everyone for all your comments and advice. It is very much appreciated. I am going to go and see a financial advisor in the next week or so, to see what they say, but as I dont particularly have any savings (Damn BJ tour :p) then it is looking like I will have to rent. Not my first choice by any means, but there is no possible way I can afford a mortgage on my own.

I work full time, of course, but the wages arent particularly great by any means. I need to ask for a payrise at some point, but I don't know how I will go on that. I guess If I cant get a payrise, then I will also have to start looking for work elsewhere. I dont want to leave at all, but it may resort to that, so there could be many changes in my life in the coming months. Its pretty damn stressfull. Was everyone else this stressed when they first moved out? I really would rather buy, but It's just not financially feasable at the moment :(

Have you looked at shared ownership with a housing association?

I'm late as always, and can't be arsed to read through all the answers so sorry in advance if I'm repeating something.

The thing is, UK doesn't really compare directly with X country. In the US, it's preferable to buy, that's what a majority of people do, and house prices are more affordable. People in general have more cars, and don't rely on public transport. In Europe on the other hand, renting is often the better option, and is more typically done. For example, in Finland, the average age when a person buys a property is considerably higher than say in the US. There are several reasons for that, no need to go into that here.

In this country, it's a two-fold. I don't know about Liverpool, it's probably way more affordable up there than it is down in London where the house prices are ridiculous and most people just can't afford to buy.

When I moved here in March, I wanted to rent, because we didn't know the place, and didn't know where to buy etc. I've liked it, because when you rent, you're 'free' - if your boiler breaks down, it's not your responsibility. You don't need to dish out the cash for it, your landlord takes care of it. Then comes the buts, and now I've lived here for a while, I can't wait to buy a property.

In fact, I'm putting in an offer on a property tomorrow. It's ridiculously expensive for what it's worth, but then that's London for you. It's a nice flat, has got a big garden, it's not big but it's got atmospheare, it's a very reasonable commute for both of us etc. We just fell in love with the place at first sight, and I will do everything I can to get it. The mortgage "agreement on principle" hasn't come through yet, but it will.

The thing is, even if you want a mortgage which is more than three or four times your salary, you can still get it nowadays. The lenders know that most people couldn't afford to buy if they didn't give way, and that's how it's done nowadays. If they weren't flexible, most people in London could not afford to buy, that's the reality.

I suggest you find yourself a good mortgage advisor, and they'll tell you everything you need to know. Better yet, talk to someone who's just recently bought a house. But make sure you know the realities - you will need to dish out at least £3,000 initially for essentials - stamp duty, solicitors' fees, mortgage advisors' fees, surveys.............even if you're getting 100% mortgage, you still need to have a couple of thousand for the running costs. And you need to make sure you have enough to deal with any emergencies - broken down boilers, dishwashers etc.... The list is endless.

I would say rent first, whilst you're looking. If you can get a rental agreement with a short rental period - make sure you're not committed for a year. And take your time looking around. On the other hand, you've got the upper hand that you live with your parents - an excellent opportunity to save up!

Between the two of us, we're spending at the moment almost £15,000 a year on rent - I'd rather be paying that money towards my own house, rather than help build someone else's property empire. I love this place, and I don't want to move out, but it's way too much to pay for something you'll never see the return of.

Kev, I've been doing extensive research on this the last couple of weeks, if you want any pointers, checklists, questions to ask etc.... pm me. Buying by yourself is more difficult than if you were buying with someone else, but it's not impossible.

huh? That makes no sense. Banks lend you a certain amount based on a formula. Not based on your individual lifestyle. Just because their formula (which happens to be different from market to market - after all we want to keep selling real estate...) allows you to borrow a shitload of money, doesn't mean you actually can/will/are able to adjust your lifestyle accordingly. On paper, I'd be able to take out a much bigger mortgage than I carry, but *I* know what expenses I have and how much I want to save for retirement, so I truly cannot afford a larger mortgage. I want to say that *I* know better than the mortgage broker eyeing that commission....

Yep!!!


That's assuming the real estate market it the same everywhere. Which, of course, it is not. While you probably won't ever have to worry about depreciating value, there are markets in the US and abroad, of course, that are actually on the losing end of the market.

When I was still married, I was contemplating buying a townhouse in Germany as a vacation home. I eventually decided against it as I saw a divorce looming. Lucky me. Those townhomes now sell for less than they did 6 years ago. This is in a prime location in the countryside. (perhaps my cue to revisit the buying part ;)).

I guess what you really need to look at, Kev, is how much is the smallest place in the most promising neighborhood to buy? Now is the time to buy a condo - you don't need anything big as you are still single. Once you are married and have 5 kids you don't have the luxury of getting in on a study apartment with incredibly promising appreciation. Now you get that small place, wait a while, trade up.

In most markets, you (or I) won't be able to save up to buy that starter home. Real estate appreciates so much faster than you can save. Get in as early as possible and buy the cheapest/smallest place in the most promising neighborhood.


One other thing: I'd never ever in my life consult a mortgage guy about what to do. I have yet to meet a loan consultant that didn't want to sell a mortgage, regardless of what made sense to me personally. Talk to a CPA instead. Or financial planner or whatever you call it over there.

There are Independent Mortgage advisors in this country which will offer independent advice on your personal situation, to get the best deal out there. They will do all the negotiations with the bank, which I find really good. If I have to pay £300 for their service, I will gladly pay, knowing that someone is looking out for my best interest. This is especially good if you're in need of a flexible lender (willing to lend you more than 3x the salary). The fee is only payable upon completion, so if they don't find you anything, you don't pay.

And here, as ever, contacts are important. Talk to people, and if anyone you know knows a mortgage advisor, get them to drop in a good word for you.

That depends on your definition of 'afford'. In the UK, banks base their mortgage offer based on affordability and to a certain extent, lifestyle. They do not work it out by a simple formula based on your income alone. I take your point that you have to decide how much spare cash you need after bills etc but I sort of took that as read.

At the end of the day they are still mortgage brokers in the business of selling mortgages. Of course a good broker will find you the best deal and if you have to get a mortgage you need to enlist the services of a mortgage broker. However, I'd never rely on their word of what is a good deal. While they do the footwork for you, they still need to get paid at the end of the day. If it is a flat $300 or a commission by the mortgage company based on the rate or buried in your closing costs. It makes no difference.

It's your finances and you need to understand the workings of a mortgage and you need to know what competitive deals are.

I don't go to a Toyota dealership and ask advice on what car to buy and/or where to finance it.......

In my field of business it is called lack of independence.

Just because I have decided to use a mortgage advisor (an independent one) doesn't mean I have not done my leg work, or cannot act independently. I've compared a lot of different mortgages, spoken to a lot of people who have recently bought in London, and taken everything aboard. So when the mortgage advisor comes back to me, I know whether or not what he is offering is a good deal. I know it won't be the best interest rate, because the fact is that based on our income, and the house prices, a flat-rate formula won't work, and most banks won't give us enough money. In order to find a bank that will, we have to be flexible in something else. That's what it comes down to.

It really can't be compared to going to a Toyota shop and saying I want the best deal on a car. That would be me going to HSBC, and asking for the best mortgage. Moreso it compares with me going to a (make-)independent car salesman, and asking him for his best offer. Since he's not specialised in one particular make, he will give the best fit for my situation from the cars he has on offer, regardless of the make. And because I will have done my legwork, I know if that is acceptable or not.

I'm not lacking independence, and I do have my own brain. I've done my research, and now it's time to get down to it and close the deal.

I wouldn't really go with this option, I know someone who did this and although it sounds like a perfect scheme you pay a mortgage and rent!

Although late I would definitely buy if possible - I still regret waiting so long. However you don't want everything you earn to go into a mortgage. If you are just starting out, think about what you can miss per month on rent/mortgage, utilities, insurance and food and work from there. The upside of renting is that usually your rent covers utilities and if something goes wrong you have a landlord to fix it. If you are smart though, you will try and save if you do decide to rent just to build up capital when you can and want to buy.

huh?

chill out. I never claimed otherwise.