Buy House or Rent + Invest

smiddle3

Hi All,

I split up with my ex-partner in spring last year and we (finally) sold the house we shared together due it being unaffordable for either of us to take on on our own (one of many financial mistakes I have made over the past few years!) in December.

Luckily, we sold at a small profit so I came out with my deposit plus a little bit extra (roughly 10k). I have moved back in with my dad temporarily whilst I figure out what to do next. My initial thought, and the advice everyone has been giving me, was to stay here for a good few months, save up as much as possible and look at putting a deposit down on my own place. I am currently putting away around £750 per month in high interest bank accounts.

However, I started seeing someone new about 3 months ago who lives about 10 miles away from me. They have a house of their own as well as child from a previous relationship and are pretty 'rooted' where they are with things like childcare, schools etc. Whilst I know it is early days as far our relationship is concerned, it has got me thinking about whether buying my own place and rooting myself in a particular place in the near future is the best course of action or whether I should look at renting for the short (and possibly) long-term.

I have been weighing up the pros and cons of both as well as reading up on saving and investing and I have read a lot of people's (mainly Americans I must add) opinions saying that, in terms of an investment, buying a house ranks as possibly the worst type (illiquid, lack of diversification etc).

Therefore, long-winded I know, my question is simply: has anyone had experience of being in a similar situation or simply just weighed up the choice between buying a house or renting and investing spare cash and how did you come to a decision?

Thanks in advance

chockydavid1983

The main advantage of renting is the flexibility it gives you in terms of being able to move to a completely different area with very little notice so depends on what your short and long term plans are really.

xylophone

You might try a LISA ( I am assuming you're under 40) and give yourself two or three years to sort out your personal life (assuming Dad is happy to consider sharing his home)?

http://www.moneysavingexpert.com/savings/lifetime-ISAs

Pincher

You are under the impression that your life is your own.
I have no delusions. I have lived for the tax man all my adult life.

If you buy a second house for renting out, you will pay an extra 3% in stamp duty. So, at some point, make sure you buy a house without paying the 3%. If you end up renting it out later, because you move into a new partner's house, the tax man can't chase you for it.

If you end up half and half on the matrimonial house, I think you end up paying 3% if you try to buy a Buy To Let. In China, people get divorced, just so they can buy an extra house.

ruperts

Nothing wrong with renting for a while. Think of all the fees you'll have to pay to buy a house and then potentially to sell it again in a couple of years, and in the early years of a mortgage you're paying mostly interest. If you calculate the amount of interest you'd pay on a mortgage over say three years, add on buying and selling fees and then make that sum your 3-year renting budget, you can then invest the remainder that would have gone towards paying down the mortgage and be no worse off.

Eco_Miser

smiddle3 wrote: »

Therefore, long-winded I know, my question is simply: has anyone had experience of being in a similar situation or simply just weighed up the choice between buying a house or renting and investing spare cash and how did you come to a decision?

It was a simple decision for me: over time rents go up, mortgages go down.

I now own my house outright, so for the rest of my life, I just need to pay for repairs and renovations.

Another, non-financial, reason for owning is you can change your house to suit you, largely without asking anyone (some changes need local authority permission).

However, in your case, with the possibility of moving in with someone with their own house in the near future, I'd suggest either continue staying with your dad, or rent.

Those studies about a house being a poor investment - they may be right in financial terms, but buying a home is more than an investment, it's prepaying a lifetime's rent at a massive discount.

justme111

Both options make sense to me. I think which is better for you will depend on multitude of circumstances - how affordable would be the type of the house you after , how easy to rent if needs be , what are your plans career wise, how you gettung on with your dad, how old is he, how likely is that he will need care, how serious will your relationship become etc. May be once you filled all high (ish) interest accounts you will stumble across your perfect house, may be before you get to that stage you will move in with your girlfriend. May be you will try to rent and will hate it. May be your dad will be unhappy with you being at his while saving. Too early to make decisions.

newuser78

I was in a similar situation as you although I made no profit. So what I did after the immediate breakup, I spent 1 year renting an attic room cheaply (area wasn't great but I needed a reality check and get myself sorted!). 1 year later, I moved to a better area and again rented a room although slightly more expensive, it gave me the opportunity to explore and find new hobbies.

I thought it was the best thing I did as it meant I then had a sizeable cash "buffer" and had a couple of holidays. I would be more tempted to either stay with your dad for a bit longer or find your own place (closer to your partner?) but rent for 1 year.

Although, I am now renting whole flat for myself, the peace of mind and hassle so far convinced me that renting is currently the right thing for me personally. I started seeing someone 3 months ago and the situation might change 1-2 years time (plus Brexit!) so who knows but if I was a home owner, my choices would be a lot more limited.

If you don't mind me asking - are you employed? How old are you?

BananaRepublic

I rented for longer than many in my position in order to move to follow high paid work. At that time interest rates were high, so savings not invested were earning. In the end I pretty much paid cash for a nice house, and my investments did well. However ... in retrospect I should have bought a flat near work, then when the work dried up, moved, and rented it out. I'd probably be £50-£100K better off now. Alternatively I could have bought multiple properties and possibly been much richer today since it was easy to get BTL mortgages 20 years ago.

Owning does have advantages. Renting is expensive if you want a nice place. If you buy, you can get a nice place, and the mortgage payments are your investment, whereas rent goes into someone else's pocket. And you can do up your own place, and have security, with no landlord to deal with.

jimjames

Eco_Miser wrote: »

Those studies about a house being a poor investment - they may be right in financial terms, but buying a home is more than an investment, it's prepaying a lifetime's rent at a massive discount.

I agree if it is a place you are living in. I'm not so sure if it's a pure investment property which seems to be the default option for many people who come into money rather than looking at a balanced portfolio.

enthusiasticsaver

There is a guardian article today about rents being forecasted to rise more than house prices in the future due to btl landlords getting out of rental properties due to tax changes. How accurate that is, who knows.

We have always bought properties rather than rented due to the fact that mortgages seem to be cheaper than rent although admittedly there are upfront costs to pay. There is also the security aspect to consider too in that you need to find another property if your landlord wants to sell up or put the rent up at the end of the lease. However if you are not settled in an area, renting for the foreseeable future may be a good idea. In the long term though eventually a mortgaged house belongs to you whereas rent is ongoing, expensive on a pension. We are now mortgage free and OH retired and I am due to go next year. The absence of a mortgage or rent from our monthly expenses has meant us being able to retire early at 58 rather than hanging on for maximum pension.