It can be difficult knowing whether rental or house purchase is the best. We are encouraged by the government to own a home but there are advantages and disadvantages so it is a good idea to be aware of some of these and give it some considerable thought before making a decision.
Long-Term Commitment
We will always need somewhere to live and so paying rent will be a lifelong commitment. However, having a mortgage and buying a home means that at some point we will be at a stage where we no longer need to pay to live in our home. Of course, we will still need to pay council tax, utility bills etc and if we have a flat there may be some ground rent, but we will not need to pay rent or mortgage repayments. It can be good to think that we will go into retirement without having to worry about paying rent. However, the mortgage is a long-term commitment. You will have to make the monthly payment for around 25 years and that feels like a long time. Try not to be put off by that though as without a mortgage you will have to pay rent for your whole life. It can be a worry, thinking about what might happen if you miss a mortgage payment, but there will also be consequences if you miss a rent payment as well. In fact, mortgage, is shorter term than rent even if you have a longer term one or if you move and extend the mortgage term. You will normally have it repaid before you retire. You will also often find that a mortgage repayment will be cheaper than rent (if you pay private rental and do not share a house) and so it could be a cheaper alternative too.
Flexibility to Move
If you own a house, then you will have a permanent residence. It means that you will be more tied to the one place. When you are renting, you are able to give notice and then move out and this means that if you relocate, perhaps with work, then it will be quite simple to move. Of course, if you own a home, you can sell it and then buy another, but this will often take a considerable amount of time and it will also cost money. You could rent that house out, but if you have a mortgage, you will need to swap to a buy-to-let mortgage which are much more expensive and often require a much bigger deposit so you may not even have that option available if you still owe a lot of money. It is therefore wise to make sure that you are sure you are going to be staying I the one location for a significant period of time before you commit to buying a house there.
Credit Rating
Your credit rating will determine whether you can get a mortgage and what the mortgage rate will be. Those with a poorer credit score will end up having to pay a higher interest rate on quite a few loans and this may also include mortgages because they are seen as a higher risk of not being able to repay. It could therefore be a good idea to look into your credit rating and whether you can improve it, before enquiring about mortgages. You may find though, that a poor credit rating will also affect your ability to rent. You will find that landlords will do credit checks and they will also want to make sure that you seem capable of paying their rent when it is due. You will therefore be wise, to try to improve your credit rating in all situations. Mortgage lenders will also look at bank statements to see whether you have enough money to cover your repayments. Therefore, try to maximise income and minimise spending for a good six months before applying for a mortgage. Not only will this make you a better prospect to lenders, but you should be able to put more money away towards your deposit so that you can borrow less money.
Investment
Many people will think that buying a home is a good investment. It is worth being careful about this as it isn’t always a good investment for the home owner. This is because of the specific definition of the word investment and confusion that can arise around it. An investment is something you buy in the hope that it will increase in value and possibly even pay you an income. If you buy a home to rent out to someone else, then you can gain from the rental income and when you sell the house, it is possible it will have increased in value and you make a profit. This would be considered to be an investment property. However, if you buy a house to live in, it is not seen as an investment in the same way. Although it could increase in value, you will not gain an income from it (unless you rent out a room, driveway etc). You will also always need a home to live in, which means that you will not be able to sell it and get back the increase in value unless you decide to start renting again, downsize or release equity. It is most likely that your children will inherit it and they will gain. This can be good though as it will help them out but it will not be an investment for you as much as an investment for them.
