If you’re confused about whether you should rent or buy a home, you’re not alone. The answer isn’t simple, and what’s right for one person may not be right for the next. The best way to determine whether you should rent or buy is by taking a handful of things into consideration. This article outlines various considerations you should assess in making this decision.
How Long will You Stay?
One of the main things that will determine whether it makes more sense to buy or to rent is the amount of time that you plan to stay put. If you want to buy a house you should plan to stay in one place for at least six years. With anything less than that you may not see enough capital gain to offset the cost of subsequently getting a new mortgage elsewhere and/or paying to relocate. It’s better to rent if you’re going to move within five or six years because you’re typically only tied into a one-year lease. Worse case scenario with renting you are on the hook for the time it takes to re-let the property if you break your lease (plus the letting fee typically).
How Quickly are House Prices and Rents Rising?
Take a look at home prices and rent prices in your area. Are they both on the rise? If home prices are dropping or are low and holding steady, but rent prices rise considerably from one year to the next, buying makes all kinds of sense. On the other hand, if you live in one of the few areas in the country where home prices are on the rise and rents are holding steady, renting may be the more affordable option. If you live in Auckland where both prices and rents are appreciating then things are a little more complicated. Check out the regularly updated NZ Property Report for info on price movements.
While it’s generally true that the housing market hasn’t been as strong in recent years, the truth is that you’re socking away money every time you pay your mortgage. With renting, you enjoy the convenience of not having to pay to maintain the property, but you’re not actually saving money either. Even if property prices are not rising in your home town then some people look at a mortgage as a savings scheme, though this can be mislead. In some scenarios you are still better off renting. Check out the Consumer NZ Rent or Buy Calculator for help is assessing the relative financial merits for your particular situation.
Historically low interest rates are prompting more people to buy instead of rent. It’s almost unheard of for rents to flat-line, so you will always face rent increases if you don’t own your home. By locking in a fixed-rate mortgage, you can enjoy steady monthly mortgage payments, though the current low rates are unlikely to last for ever so you can expect to ultimate face interest rate increases. Interest.co.nz has a brilliant run down of current mortgage rates.
There are a few non-financial considerations to take into account as well. As a homeowner, you will be responsible for any maintenance that needs to be done. By renting, that burden is lifted from your shoulders. If you’re going to own a home, you need to have some money set aside for such issues. However, owning a home is reassuring. When renting you can’t put your own decorating stamp on a home like you can if you own it. To get the best idea about whether it’s better to rent or to buy, try using a rent or buy calculator like the one at mortgagecalculatornz.org.nz. What ever you do, take your time before making this monumental decision. If you do decide to buy but don’t have the time or inclination to search for the best rates and home loan deals then you might also engage a mortgage broker to help make sense of the all the options. A good broker will be able to provide independent advice and approach all the major lenders on your behalf.
Credits: Photo by Mr Thinktank