Why buying will always beat renting in the longer term
There isn’t a simple answer to this question and that’s primarily because the cost of renting will vary depending on geography. Having said that there are other factors. I recently read that Milton Keynes, Dundee and Stoke-on-Trent top the list of places where owning beats renting by a large margin. This is because rents have increased by 2.7 per cent since February. But at the opposite end of the scale, renting is the better option from a cost perspective in Aberdeen, Bournemouth and Swansea.
It goes without saying London is extreme, on average you would be paying 21 per cent more in rent than you would with a mortgage. I will always state that getting on the property ladder results in financial benefits, especially over a person’s lifetime. The main factor being you are actually paying the mortgage off, unlike renting, which is a fixed and continual outgoing.
Many people assume renting is cheaper and perhaps at the start it is as there are no extra costs associated with purchasing such as stamp duty, solicitors’ fees, arrangement fees etc. But getting on the housing ladder is worth it if you can. There are good deals including the Government’s NewBuy initiative.
It really is a case of weighing up the pros and cons associated with your own situation. But the initial up-front costs of purchasing are short lived and quickly forgotten when you realise you have a potential investment.
In a word, yes. The Bank of England is very focused on continuing to create stimulus in the market and it’s likely to continue for many years. Up until now the banks have struggled to borrow money at a rate that allows them to pass on the benefits to customers. The Bank of England has helped to ease this problem with the condition that cheaper mortgages and loans are provided to help ease consumer pressures.
It has been said the Bank of England’s funding will simply halt the increase in rates rather than reduce them. But contrary to this, some lenders have adjusted their mortgage rates.
Virgin Money, which recently bought Northern Rock, and Yorkshire Bank both cut fixedrate mortgage costs. Virgin reduced its two and five-year fixed rates by 0.16 percentage points. Its five-year rate is now 3.99 per cent. Also Yorkshire Bank removed the £999 arrangement fee from its five-year fixed-rate deal at 3.79 per cent.
I’d look at your own circumstances more closely. If you are on a standard variable rate of four per cent or higher and have reasonable equity in your home you should seriously consider looking at other mortgage options.
Most lenders offer fees-free packages for people interested in switching. This could shave your monthly repayments, especially if you are worrying about your household budget.
There is no doubt variable rates in recent times seem to provide more vulnerability than security leaving you at the mercy of the banks. Other mortgage options aren’t so undefined and trackers will only move if the base rate rises – which provides more comfort and less uncertainty. For ultimate security of payment, a fixed rate will give you peace of mind, but timing is important when fixing, but low loan to value and long-term fix rates below four per cent at the moment need serious consideration.
Of course, no-one really knows what will happen next but for now it seems as steady as it’s going to be. Keep your options open and don’t rule out remortgaging, you may be able to find a better deal.
Franz Muelthaler is a mortgage advisor for Dewsbury and Wakefield estate agents Holroyd Miler, www.holroydmiller.co.uk