Renting vs buying..what would you do?

Dr_Moe_2

My cousin recently started a new job in the North East. He managed to sell his (Leeds) house quickly and banked a 5K profit (after paying off secured and unsecured debts). He also had to pay a redemption charge of £5000 but the bank promised to waive it if he ports his mortgage within 3 months.

Four weeks ago, he went out and found a 3 bed property in a good area with no chain. On market for 250K- seller refused initial offer of 225. The eventually agreed on 245K and a 30 day finish. The house was bought for less than 100K in 2000 and nearby houses went for 167K in 2004.

He already has a 100% mortgage and will be borrowing an extra 90K. However, it seems that he's getting cold feet now because the prices have started to drop in the area (sellers are panicking and dropping their prices because of all the media stories and estate agent pressure). Mortgage is 50-60% of take home pay. His fixed term mortgage will be running out in October and LTV is around 7%. Paid interest will be around £1000-12000. Single income, no kids, but is planning to have kids in the next few years.

He approached me for advice and I told him to consider renting for a while and saving a good deposit. What worries me is that his contract is for 4.5 years only and will not be living there long term. Moreover, renting the house will not cover the mprtgage repayments. He feels that he'll lose out on the £5000 redemption charge and will also lose a company relocation package of £3000-4000 (to cover stamp duty and legal fees). Renting a 3 bedroom house in the region is also quite expensive (£900-1200). He's also not a fan of rented accommodation and moving house every year.

It's a difficult one I think. No one knows whether the prices will fall or not over the next few years, but why take a risk when you can have cash in the bank? I hate gazundering but should he be renegotiating the price with the sellers? Or should he accept the initial loss, rent and wait for prices to fall? Or just take the risk but overpay as much as he can?


I told him that I'll post this on here. Your opinion is highly appreciated.

Jorgan_2

I don't think he can afford to purchase the property, if he can't put down a decent deposit.

If he is moving to an unfamiliar area he needs to research the area & renting for 6 months would be a good idea, no matter what the market was doing.
Can he ask if the relocation package can cover his rental costs for a few months rather than stamp duyt & legal fees?

Why would he have to move every year if he rents?

cupid_s

He will lose 9k if he pulls out now (though I am sure the relocation package could be adjusted to cover removals and the deposit for renting) if he doesn't I'm sure he stands to lose a lot more than that.
I know house prices have increased ridiculously but an almost 50% increase in 4 years seems a bit excessive.
If this was a forever home then it would be different but if he can't sell once his contract runs out, and can't cover the mortgage through renting then he will be in trouble. Also with no deposit he could easily end up in negative equity and face losing a lot more than just 9k.
If he is renting he might not need a 3 bedroomed house as he could easily move when he needed to and so he'd be paying out less in the meantime giving him time to save.

Dr_Moe_2

Jorgan wrote: »

Why would he have to move every year if he rents?

He's worried about the landlords selling the house after a year or two. Most of the rental houses around here are ludicrously priced to cover the landlords' mortgages. A lot of (greedy) people have decided to rent their property out rather than sell for less.