Renting Vs Buying
Our article on renting vs buying noted that qualitative factors can be very important when making the decision of renting vs buying. In fact, they can often be more important that the costs involved.
Although everyone's circumstances are unique, this article provides some more information about some common qualitative factors:
- Whether you need a better credit rating for future borrowing
- How much stress you are prepared to deal with if and when you move
- Which of your sense of independence or freedom are more important to you
- Whether you'd rather spend or save
- Your pension strategy
- And other factors
Credit RatingIf you want to borrow money in the future, then it may be easier and cheaper (you may get a better rate of interest) if you have a better credit rating. Renting or buying can have an impact on your credit rating because home owners usually get a better score.
When you move rental properties the amount of work and levels of stress involved are usually much less than when selling your home and buying a new one.
When you are a tenant, you can choose to end your tenancy at a definite date. You have to find a new place to move into, but signing the tenancy agreement is a relatively simple process.
When you sell your home, you may find:
- you cannot move until you find a buyer
- you may have to work away from home and/or rent a second property until you have sold the first
- you may need to arrange a briding loan
- the housing chain may collapse
- surveys may expose problems
This isn't to suggest that moving rental properties is stress-free, but there are usually far more problems trying to move when you own your own home.
There is a difference between owning your own home and being a tenant in psychological terms. Being an owner-occupier can give you a sense of financial independence, but being a tenant frees you from responsibilities that inhibit your freedom.
The psychological factor in the renting vs buying decision is highly subjective, and it depends on how you feel about each option
Home ownership is a form of enforced saving. As you pay off the mortgage, you build up asset value in the house.
It can be difficult to get access to the money tied up in your house: usually, you have to sell the house and find somewhere else to live. There are schemes where you can get cash out of the value of your house, whilst living in it, called "equity release" but they tend not to pay a lot of money; if you want to convert your house to cash, it is often best to sell up and buy a cheaper property.
However, being a tenant may often be a cheaper way of living, so you have more money to spend. You can, of course, be a tenant and save as well: if you want your savings to keep pace with property prices, then you can invest in property funds.
Do you have a pension fund that will cover your housing costs when you retire? If you expect to have a small income in retirement, then you may be better off owning your own home, which will reduce your living costs in old age.
Owning your own home may also give you the option, if you find it difficult to make ends meet, to sell up, move to a smaller house, and invest the money gained to supplement your pension income.
There may be other lifestyle factors that affect your renting vs buying decision. For example, tenancy may provide better support for a career where promotion may require you to move quickly. Alternatively, if you have a growing family then you will need to own your house if you need to extend it.