Press Article
METRO - 17 March, 2011
Buying vs renting
By Jo Eccles
I am often asked whether it is better to buy or rent a property, and there is no black and white answer – there are a lot of factors to consider when deciding which is best for you.
In order to assess which is cheaper, renting or buying, you will need to compare how much rent you would be paying each month, versus what your monthly mortgage repayments would be.
Rental yields in London are approximately 4% – 4.5%; this means that the annual rent you would be paying for a property is around 4.5% of its resale value. For example, on a £500,000 home, the annual rent will be about £22,500, which equates to £1,875 per month. When doing the sums you also need to factor in some upfront costs such as estate agency administration fees (usually around £150) and professional cleaning and inventory checks (around £200).
For a buyer with a 25% cash deposit, the mortgage repayments on a £500,000 home will range from around £800 – £1,450 depending on the type of mortgage chosen (i.e. interest only or repayment, fixed rate or tracker). This makes the monthly costs of buying less than the monthly cost of renting, providing you have a good deposit, but as a homeowner, you must also consider your property’s maintenance costs.
For rental properties, the landlord is responsible for all maintenance work and repairs – if you are renting and your boiler breaks down, your landlord must fix it. If the same thing happened to you as a homeowner, you would need to arrange and pay for the repair yourself and so should set aside a contingency fund.
The benefit of owning your own property is that you will have an asset to sell when you choose to move. You may be able to make a profit from the resale of your home if you have made any improvements or if house prices are higher when you come to sell. That said, you will need to deduct all purchase and sale costs, such as stamp duty and fees, from any profits.