FOOL SCHOOL
Should You Buy Or Rent?

April 6, 2005

It's a very important question, this. When you buy a house, you're borrowing -- and paying back -- a truly colossal amount of money. Oodles and oodles of it, in fact! So you must be wondering whether it's really the right thing to do.

Why You Might Want To Rent

First of all, there's absolutely nothing wrong with renting if your circumstances require it. You may not be able to afford to buy right now, for one thing, if you don't have enough money for a deposit, other buying expenses, furniture and so on. Or you may have moved into a new area and you want a little time to get to know it, so you don't make the mistake of buying a property that turns out to be in the 'wrong' part of town. Or you may want to retain some flexibility because you are not sure if you will need a property in that exact area for very long. It's also possible that there may be a glut of rental properties in the area you want to live in. This could drive down rental prices, and make renting an attractive short-term option.

To be honest, being a homeowner brings a whole series of potential problems. You can't just ring up the landlord when the boiler blows up because it's you who will have to find the money to fix it. It's you who will have to make sure your house insurance is up to date when the River Piddle, which runs through the bottom of your garden, starts rising alarmingly during a torrential downpour. And it's you who will have to sort out finding someone to buy your home when you eventually decide to move on to pastures new. After the recent rapid rise in house prices, there is also the possibility that prices could fall back in the next few years. So you may feel that renting, and sitting on the sidelines so to speak, is a sensible option. The trouble with this course of action is that no one knows what will happen to house prices in the future (although everyone has an opinion of course!).

Nevertheless, you just can't beat owning your own home in the long run. It's yours, for a start, and there are huge benefits, many of which are actually financially good for you.

Why You Might Want To Buy

If you think about it, someone has to own every house in the land. If you don't own the roof over your head, you'll have a landlord that you rent it from. This landlord clearly thinks that it's worthwhile to own the property, otherwise they wouldn't do it. They either tie up their own money, or borrow it on a mortgage, just as you could have done. They then charge enough rent to cover the upkeep of the property as well as taking some profit for themselves.

So, if it's profitable for your landlord to own the home you're living in (assuming that they've done their sums properly of course), then you have to ask yourself why you shouldn't just be your own landlord. By buying your own home, you can make the profit for yourself that your landlord would have been making from you. After all, you don't need to charge yourself a deposit, you don't need to worry that you might run off without paying rent and you don't need to worry that you might start squatting in your own home.

A landlord needs to charge a tenant just a little more than otherwise to take account of the risk of these things happening but, if you do the job yourself, you know that these things just aren't going to happen. You can therefore save yourself some money.

When you own your own home, you own a real asset. 'Real' as in it is actually there: bricks and mortar. Not only is your home very likely to grow in value as the years go by, but when you make the last payment on your mortgage, you will be sitting on (and in!) a house that belongs entirely to you. You don't get any of that by renting.

Find out more in our Homeowning centre.