1. Differences between purchase and renting - ZoWy

Differences between purchase and renting.

Agenda:

  • • To see a difference between owning and renting.
  • • To see the advantages and disadvantages of owning & renting.
  • • To understand the financial aspects of owning and renting.

People consider two options when it comes to the properties they live in:

  • • To rent.
  • • To purchase, generally with the help of a mortgage.

There are many differences when it comes to both options. However, let's focus on the main ones:


  • Money.
    It is expensive to buy a property. Typically, you require at least a 10-15% deposit, subject to perfect credit history and other eligibility factors. It is £30,000 plus a few £k for a standard purchase, making it nearly impossible for especially young people to have that money saved, or at least saved quickly. So, purchasing is tough to do and requires a long persistence in saving. Rent is also not cheap. Typically you are looking for payment for a month, or even longer-term, for rent. Plus high deposit and all expenses related, including agent fees, goods removal, sorting out utilities and probably days off work to do everything. So renting is not cheap and is likely to cost £3-4k. And you need to pay it every time you move, and if you are saving towards a deposit, it affects your funds a lot.
  • Ownership.
    It is straightforward - when you purchase it, you immediately own it. Good that you take advantage of the price increase when the markets rise, but also, you then have to take a hit if prices go down. As the tenant in a let property, you are not taking advantage of increasing costs. Still, you also have no risk of losing the property's value as it is not yours. However, as the tenant, you don't own anything, can't sometimes put holes in the walls, and the rent can increase at any time - it is not a pleasant feeling for some of us.
  • Responsibility.
    You own it, and it is your responsibility to deal with everything to do with the property. It might be a little building work or appliances that need fixing/replacing and the liability if anything wrong happens to other people/items at your property. As the tenant, you may not seem to have many responsibilities. Still, you have a duty of care similar to the owner living in a property. Additionally, any defects to the property will be deducted from your deposit. So tenants do have a responsibility and also have financial risk.
  • Monthly payment.
    As the owner, you will have a mortgage. Most of the time, you will pay the interest plus capital on your mortgage, which decreases your loan amount monthly. It is a much better option than not paying off your property at all. As the tenant, you pay rent which goes to the landlord, and you get nothing from it. As a tenant, you are likely to pay more than a mortgage for a similar property. If the landlord lets the property he wants to make some profit, then the rent HAS TO exceed the mortgage payment. So tenants not only lose money but also pay more than owners.
  • Security.
    You can explain this as being confident that nothing and no one can move you away from your house. It means that you don't have to look for accommodation every time the landlord changes his mind about your tenancy. There is no need to look for a new school for your kids or new friends. As the owner of the property, you have the highest security of owning property. It is just yours, and as long as you meet your monthly mortgage payments, the house is just yours. As the tenant, the security is just the length of your tenancy agreement which in most cases is 6 or 12 months.
  • Investmen.t
    it was already described in the section Money. Your house is your money and your investment. It can go up or down but more likely up over a long period. As the owner, you take advantage of the price increase. The other advantages are interest rates. The more you pay your house off, the lower the interest rate you pay as your Loan-to-value is lower. That way, you pay LESS MONTHLY over the time subject to England Base Rate not going up too much in the meantime. As a tenant, you always pay more than a mortgage payment so the landlord can profit, and tenants do not take advantage of prices going up.
  • Family.
    one thing is the security of owning and staying as long as you wish in a property. The other aspect important for property owners is further security for their families. Owning property means that your beneficiaries will receive that property or money from their sale when you die. There is no option like that while you are a tenant. You are also allowed to let your close family stay in a property anytime if you wish. As the tenant, you are often limited by the Tenancy Agreement to how many people can stay in a property.
  • Pets.
    Do you have a dog or perhaps even a cat? Almost everyone renting has a severe struggle to find a landlord allowing pets to stay in a property. The reason is simple - they damage the property. It often lets inquiries to the letting agent start with whether they have ANY property where a pet can stay. In unlikely events of landlords accepting a pet, usually, the deposit is a few times higher to cover any potential extra expenses. So how can you stay with your loved ones? You can purchase it.
  • Credit history.
    there are many situations in your life where your credit history is essential. Buying a property is obvious, but there comes a time in your life where you need to buy a car with finance. You may need to get finance for school, holiday, wedding etc. Or perhaps you need to increase your credit limit on credit cards or overdraft. So as the tenant, your credit history can be good but will NEVER BE VERY GOOD. So what that means is that tenants pay extra monthly for their property and usually pay more for all their finances - credit cards, hire purchase, overdraft, etc. Their limits are likely to be much lower to homeowners as they are higher risk to lenders. Especially if you are NON-UK without property in the UK, in loans, it is a high risk that you will leave a country without paying off your debt - that's how lenders see you. So if you want a more significant and cheaper credit, you should own the property instead of renting.


Conclusions:

  • • It is more expensive in monthly payment to rent than to own.
  • • As the tenant, you do not take advantage of potential price increases. Still, you do not risk anything where property prices are going down.
  • • The owner has more responsibilities than a tenant.
  • • It is very unlikely tenants will be allowed to have pets at a rented accommodation.
  • • Owners have typically a much better credit history than tenants.
  • • Owning is a much better investment than not owning ;)

Further reading:

Differences between purchase and renting.

Agenda:

  • • To see a difference between owning and renting.
  • • To see the advantages and disadvantages of owning & renting.
  • • To understand the financial aspects of owning and renting.

People consider two options when it comes to the properties they live in:

  • • To rent.
  • • To purchase, generally with the help of a mortgage.

There are many differences when it comes to both options. However, let's focus on the main ones:


  • Money.
    It is expensive to buy a property. Typically, you require at least a 10-15% deposit, subject to perfect credit history and other eligibility factors. It is £30,000 plus a few £k for a standard purchase, making it nearly impossible for especially young people to have that money saved, or at least saved quickly. So, purchasing is tough to do and requires a long persistence in saving. Rent is also not cheap. Typically you are looking for payment for a month, or even longer-term, for rent. Plus high deposit and all expenses related, including agent fees, goods removal, sorting out utilities and probably days off work to do everything. So renting is not cheap and is likely to cost £3-4k. And you need to pay it every time you move, and if you are saving towards a deposit, it affects your funds a lot.
  • Ownership.
    It is straightforward - when you purchase it, you immediately own it. Good that you take advantage of the price increase when the markets rise, but also, you then have to take a hit if prices go down. As the tenant in a let property, you are not taking advantage of increasing costs. Still, you also have no risk of losing the property's value as it is not yours. However, as the tenant, you don't own anything, can't sometimes put holes in the walls, and the rent can increase at any time - it is not a pleasant feeling for some of us.
  • Responsibility.
    You own it, and it is your responsibility to deal with everything to do with the property. It might be a little building work or appliances that need fixing/replacing and the liability if anything wrong happens to other people/items at your property. As the tenant, you may not seem to have many responsibilities. Still, you have a duty of care similar to the owner living in a property. Additionally, any defects to the property will be deducted from your deposit. So tenants do have a responsibility and also have financial risk.
  • Monthly payment.
    As the owner, you will have a mortgage. Most of the time, you will pay the interest plus capital on your mortgage, which decreases your loan amount monthly. It is a much better option than not paying off your property at all. As the tenant, you pay rent which goes to the landlord, and you get nothing from it. As a tenant, you are likely to pay more than a mortgage for a similar property. If the landlord lets the property he wants to make some profit, then the rent HAS TO exceed the mortgage payment. So tenants not only lose money but also pay more than owners.
  • Security.
    You can explain this as being confident that nothing and no one can move you away from your house. It means that you don't have to look for accommodation every time the landlord changes his mind about your tenancy. There is no need to look for a new school for your kids or new friends. As the owner of the property, you have the highest security of owning property. It is just yours, and as long as you meet your monthly mortgage payments, the house is just yours. As the tenant, the security is just the length of your tenancy agreement which in most cases is 6 or 12 months.
  • Investmen.t
    it was already described in the section Money. Your house is your money and your investment. It can go up or down but more likely up over a long period. As the owner, you take advantage of the price increase. The other advantages are interest rates. The more you pay your house off, the lower the interest rate you pay as your Loan-to-value is lower. That way, you pay LESS MONTHLY over the time subject to England Base Rate not going up too much in the meantime. As a tenant, you always pay more than a mortgage payment so the landlord can profit, and tenants do not take advantage of prices going up.
  • Family.
    one thing is the security of owning and staying as long as you wish in a property. The other aspect important for property owners is further security for their families. Owning property means that your beneficiaries will receive that property or money from their sale when you die. There is no option like that while you are a tenant. You are also allowed to let your close family stay in a property anytime if you wish. As the tenant, you are often limited by the Tenancy Agreement to how many people can stay in a property.
  • Pets.
    Do you have a dog or perhaps even a cat? Almost everyone renting has a severe struggle to find a landlord allowing pets to stay in a property. The reason is simple - they damage the property. It often lets inquiries to the letting agent start with whether they have ANY property where a pet can stay. In unlikely events of landlords accepting a pet, usually, the deposit is a few times higher to cover any potential extra expenses. So how can you stay with your loved ones? You can purchase it.
  • Credit history.
    there are many situations in your life where your credit history is essential. Buying a property is obvious, but there comes a time in your life where you need to buy a car with finance. You may need to get finance for school, holiday, wedding etc. Or perhaps you need to increase your credit limit on credit cards or overdraft. So as the tenant, your credit history can be good but will NEVER BE VERY GOOD. So what that means is that tenants pay extra monthly for their property and usually pay more for all their finances - credit cards, hire purchase, overdraft, etc. Their limits are likely to be much lower to homeowners as they are higher risk to lenders. Especially if you are NON-UK without property in the UK, in loans, it is a high risk that you will leave a country without paying off your debt - that's how lenders see you. So if you want a more significant and cheaper credit, you should own the property instead of renting.


Conclusions:

  • • It is more expensive in monthly payment to rent than to own.
  • • As the tenant, you do not take advantage of potential price increases. Still, you do not risk anything where property prices are going down.
  • • The owner has more responsibilities than a tenant.
  • • It is very unlikely tenants will be allowed to have pets at a rented accommodation.
  • • Owners have typically a much better credit history than tenants.
  • • Owning is a much better investment than not owning ;)

Further reading:

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