To Buy or To Rent? THAT is the question.
Your parents say you’re throwing money away. Some of your friends are already proud homeowners. As for your work colleagues? They say that if you don’t buy now, you’ll never get on the property ladder. But is renting really all that bad? As we’ll explore in this blog, buying may not be right for everyone.
The Advantages of Renting
The Myth of Simply ‘Throwing Money Away’
Renting isn’t a cut and dry matter of money down the drain. In fact, that monthly rental payment not only pays for the roof over your head, but also the peace of mind that if anything goes wrong, it’s someone else’s problem.
The Freedom to Move
Mortgages involves A LOT of charges and fees. Here’s a breakdown from the Money Advice Service…
|Fee or charge?||What’s it for?||Typical costs|
|Arrangement fee||This is the fee for the mortgage product, and is sometimes known as the product fee or completion fee. You can sometimes add this to your mortgage, but this will increase the amount you owe, your interest and your monthly payments.||Anything from £0 to over £2,000.|
|Booking fee||This is sometimes charged when you simply apply for a mortgage deal and is not usually refundable even if your mortgage falls through. Some mortgage providers will include it as part of the arrangement fee, while others will only add it on depending on the size of the mortgage.||Around £99-£250.|
|Valuation fee||The mortgage provider will value your property and make sure it’s worth the amount you wish to borrow. Some lenders might waive this fee on certain mortgage deals. You can also pay for your own property survey to identify all the repairs or maintenance that might be needed.
The lender’s survey only looks at the property value, not necessarily the potential problems and future costs.
See our guide to the different Survey types and costs.
|£150-£1,500 depending on the value of the property.|
|Telegraphic transfer fee||Sometimes known as CHAPS (Clearing House Automated Payment System), this fee pays for your mortgage provider to transfer the money to your solicitor. It’s usually non-refundable, so if the deal falls through you probably won’t get the money back.||Typically, £25-£50.|
|Mortgage account fee||This pays for the lender’s administration costs in setting up, maintaining and closing your mortgage. If you’ve paid this fee, then it’s unlikely that you’ll need to pay the exit fee (see below) although an early repayment charge (see below) might still apply if you close the mortgage early.||Typically £100-300.|
|Missed payments||Some lenders might charge a fee or fees if your account is in arrears.||The penalty for missed payments depends on each lender’s rules. Failure to keep up with mortgage repayments could also result in your home being repossessed.|
|Mortgage broker fee||This fee is for a mortgage broker, if you choose to hire one, for arranging the mortgage or giving you advice. Some mortgage brokers won’t charge a fee and instead take commission from the mortgage provider.
Read our guide to Choosing a mortgage – how to get the right deal.
|On average £500 or a commission depending on the value of the mortgage.|
|Higher lending charge||Not all lenders charge this fee and it’s only likely to be a requirement if you have a small deposit, as this pays for the lender’s insurance if you can’t pay back the mortgage and they have to sell your property at a loss. The fee is often 1.5% of the mortgage – for example, £3,000 on a £200,000 mortgage.||If applicable, this is usually 1.5% of the mortgage.|
|Fee for own buildings insurance arrangements||Not all lenders charge this now, so check first. Sometimes known as a freedom of agency fee or own buildings insurance fee. This fee sometimes applies if you decide to find your own buildings insurance, rather than take the one offered to you by your mortgage provider.
It can save you more money in the long run by paying this fee and shopping around for your own insurance needs.
|Early repayment charge||This fee might not always apply, so be sure to check what the rules are with each mortgage provider, especially if you want to make an early repayment in the future. If you already had a mortgage, check your keyacts illustration or European Standard Information Sheet (ESIS) document to see what the cost is.
Typically the charges range from 1–5% of the value of the early repayment.
For example, a £100,000 mortgage with a 3% charge would cost you £3,000. This covers lender costs if you repay all or part of your mortgage earlier than the agreed term or deal period.
The mortgage provider might also ask for any rewards or incentives paid to you to be returned, such as discounts on legal fees or cashback.
|Typically 1-5% of the value of the early repayment.|
|Exit/Closure fee||This is a fee to your lender when you repay your mortgage, even if you are not repaying it early. If you’ve already paid the mortgage account fee then it’s unlikely you’ll need to pay this particular fee as it will usually include set up and maintenance, as well as the closure of the account. Check what your mortgage account fee covers to make sure.||Typically £75-£300.|
These fees mean that once you buy, you’re going to have to wait a while before your house rises in value sufficiently to even recoup these costs. In comparison, as a renter you have far more freedom to move, free from thousands of pounds of fees.
The Financial Confidence of a Fixed Rental Amount
When you rent, you know what you’re going to be paying every, single, month. In contrast, a variable mortgage can go up, down, round and round, and with uncertain market conditions looming post-Brexit, there may never have been a worse time to have a variable rate mortgage.
The Drawbacks of Buying
The Need to Buy in the Right Area
Researching an area is tough. Not only might you have to consider your needs for today (free from children), but also of tomorrow (when the little one starts school). Unlike renting, you won’t have a chance to trial an area to try before you buy, and the pressure of other offers on the table could lead you into making a rash decision on the right house, in the wrong location.
A Change in Family Circumstances Could Mean a Squeeze
Extra little bundle of joy on the way? Mom, dad or an elderly relative in poor health and suddenly under your roof? If you don’t have a couple of spare bedrooms at the ready, you could suddenly find yourself considering bunk beds.
Whether you’re moving onwards to a new rental property, or moving into your very first mortgaged home, our team are on hand to shift your belongings swiftly and safely. Get in touch to grab your quote or find out more about our removals service in York.