Why buy­ing will al­ways beat rent­ing in the longer term

Yorkshire Post - Property - - PROPERTY - Franz Muelthaler

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

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