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Rent or Buy Sign

Many people spend their lives striving to get onto the property ladder, saving for large deposits and making financial changes to improve the interest rates offered by mortgage lenders. But with the current economy and thus property market being uncertain, it may be worth considering the option of renting. There are obviously pros and cons to both, but making the right decision could be the difference between a great purchase or being tied to a mortgage you are struggling to afford.

Property is not always a good investment, particularly if house prices are falling, it would cost a lot to pay the interest on your mortgage as well as maintaining your property. In which case, renting could be a good idea. On the other hand, if property prices are on the up, and interest payable on a mortgage costs less than paying rental on a property, then purchasing a home is a good idea. The decision you make is very much dependent upon current market conditions. It is simply worth remembering that rent is not always dead money. House prices can depreciate quickly, potentially giving you negative equity, but of course paying a mortgage results in the ownership of your home at the end of your term.

When making your decision you need to take into account factors such as stamp duty, legal fees and commission as well as house prices and interest rates. If you choose to rent, you can save and invest the money you save until perhaps it’s a better time to buy. However if you do choose to buy, you need to ensure that the mortgage repayments are completely affordable and not at the higher end of your budget, so as to take into account any increased payments in the future.

Choosing to rent can seem like dead money, as you are handing over money each month to someone else to pay off their mortgage, but using that time to rent before purchasing a property can save you literally thousands if the market is changing. Renting also gives you much more freedom of course, as you are not tied down with the huge responsibilities of owning your own home. Buying a property is a huge commitment and shouldn’t be taken lightly.

If you choose to buy, it is a good idea to offload your mortgage as soon as you can. As well as being incredibly liberating to remove the burden of such a large debt, it is a very tax-efficient way to use your savings, rather than keeping savings separate. The interest you can save from using your savings to pay off your mortgage can be much greater. For example, a higher rate tax payer would need savings accumulating 7.6 per cent to achieve the equivalent savings on a mortgage charging less than 5% interest. The more years you can save off your mortgage, the better the deal you will have, which in turn will increase the potential profit in your home if and when you come to sell on.

by Cormac Henderson

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