To rent or to buy? That’s the big question! There are certainly pros and cons to each, especially when it comes to what makes financial sense. Choosing to rent or buy a home is a huge decision and one that doesn't just affect your finances but your lifestyle, too.
Renting a home gives you a lot of flexibility without a lot of responsibilities. Buying a home on the other hand is often seen as an investment that can offer a sense of security.
Should you continue renting? Should you become a first time home buyer? We consider the pros and cons of renting versus buying a home to help you work out which option makes the most sense for you.
Renting a home
How many times have you heard people say that you are "wasting money" paying rent? This isn’t necessarily true. If you need a roof over your head, it will cost money whatever way you go about it. The good news is, that over the last 12 months, there has been a spike in the number of houses for rent in Ireland. For the first time in years, it is a renter's market.
Ok, so rent payments won't help you build equity in your own home, but homeowners also spend money on interest payments and taxes, which don't go towards building equity either.
When you rent a home, your rental payments are the same each week/month. This is great to help with budgeting.
However, when you buy a home your mortgage repayments and bills might be the same each month, but there are a lot more costs to consider.
In rental properties, if the roof starts leaking, your landlord will pay to have this fixed. It might not be fixed immediately, but it shouldn't cost you a cent.
If you buy a home and the roof starts leaking, you are the one who has to pay to have this fixed. This might cost you thousands, and it will no doubt be something for which you hadn't budgeted. If you have home insurance, this might cover some of the cost.
As a renter, your monthly house-related expenses, such as renters insurance are usually cheaper and more predictable. This is because renters insurance only covers your belongings, whereas homeowners insurance covers both your property and belongings.
There is great flexibility in renting a home. When your lease is up you can move out without penalty.
However, on the flip side, it means your landlord could ask you to move out with very little notice.
Landlords can also hike up the rent, which might end up being more than you can afford. However, as a homeowner, if you have a fixed-rate mortgage, your repayments will never go up. Although, property taxes and insurance premiums might do.
Renting a home is also more flexible when it comes to upkeep. When you buy a home there is always something to be done to the place. Instead of going for that long cycle, you might have to paint the walls, replace the boiler or cut the grass. With rental properties, someone else takes care of all of that.
Pros of renting a home
- At the moment, there is a good supply of houses for rent in Ireland.
- Renting a home offers greater flexibility.
- Predictable monthly expenses.
- Your landlord will take care of any repairs.
Cons of renting a home
- You are at the mercy of your landlord, you could find yourself being asked to leave at short notice.
- You could also be hit with exorbitant rent hikes.
- After years of paying rent, you do not have any asset in the end.
Buying a home
There are many intangible benefits when you buy a home. These include a sense of stability and security and the sense of belonging to a community, not to mention pride of ownership. One of the main reason people want to buy a home instead of renting, is to get on the property ladder and own a valuable asset at the end of the day.
However, we have all seen that houses can lose their value. Your property may not be worth what you paid for it if you come to sell it. This is a huge concern amongst buyers at the moment as house prices have risen nearly 8%* than the year previously.
On top of that risk, homeownership doesn't give you as much flexibility as renting does. Homeownership may not suit the nomadic types who like being able to up and leave a place at a month's notice. If you own a home and want to move, you might find it difficult to sell during a depressed housing market. Even if it is a 'seller's market' there are significant costs when you sell a property.
Even though rents are pretty high in Ireland at the moment, the overall cost of owning a home is usually higher than the overall cost of renting. Mortgage payments might be lower than rental payments but there are more expenses involved. For example, when you buy a home, you have to pay property taxes, mortgage protection, home insurance, and maintenance and repairs.
Furthermore, the first few years of your mortgage repayments are usually just paying off the interest. It is only when the amount you owe reduces that your repayments start paying off the capital.
Buying a home is not suitable for everyone. You need to have job security and be financially stable to secure a mortgage in the first place. You also need a lot of money upfront to pay the deposit, the legal fees and the costs associated with buying. For more, read our guide on Buying A House for the First Time.
Not to mention, there is a stock shortage at the moment so finding a house to buy can take quite a while. According to Daft.ie*, the total number of properties available to buy on March 1st this year was just under 12,000, the lowest level in 15 years.
Pros of buying a home
- Buying a home comes with intangible benefits, such as a sense of security.
- You can decorate the place exactly how you like it. Those walls will look great in hot pink!
- You end up with an asset at the end of the day.
Cons of buying a home
- The true cost of homeownership is higher than you might think.
- It is a big commitment and it might be difficult to sell when you want to move on.
- You need to have financial and job stability to be in a position to buy a home in the first place.
- There aren't a lot of houses for sale at the moment.
As you can see, when it comes to renting or buying a home there are advantages and disadvantages to both options. It isn’t purely a financial decision - you need to consider your lifestyle, current situation and your future ambitions before you make a decision on which option is best for you.
If you think you're ready to make the leap from renter to first time home buyer, make sure you weigh up the pros and cons before you jump in!