Property Moose explores the reasons why many young professionals are choosing to rent rather than buy their first property.
- Flexibility
If you are planning on buying a property, you are immediately limited to what you can afford. This means you are often restricted in terms of location, property size and the overall standard of the property.
However, if you choose to rent, you may find that you can afford a higher standard of property in a more desirable neighbourhood. This is one of the main factors that could appeal to many young professionals today. (1)
- Freedom
Buying a property could tie down your financial freedom. If you find that something breaks or needs to be repaired in the property, the responsibility lies with you, the property owner, rather than a landlord. Renting takes away the responsibility of maintenance as it lies entirely with the landlord or letting agency (unless you agree to a repairing lease, but this is usually an arrangement for commercial lets). If your boiler was to break down at 3am, a tenant may be able to call an emergency number and have it replaced within a couple of hours.
A property owner on the other hand would have to wait until they could contact a heating engineer and wait for it to be repaired. (2)
Moreover, if you find that you don’t like the neighbourhood you’ve chosen to move to, as a tenant you could simply end the tenancy agreement and move on. A homeowner would have to begin the long process of trying to sell the property and then find somewhere else to buy or rent in the meantime.
If you were to own a property and want to move quickly, you could also be faced with a large moving cost, as well as legal fees and you may even lose money on the value of your property.
- Maintenance
If you buy an apartment, you will have to pay a building maintenance fee, a ‘Service Charge’. The building maintenance fee covers the building and the grounds and ensures that they will be kept clean, neat and presentable. If you were to rent an apartment, this fee will be covered by the landlord and not the tenant (although it is probably incorporated into your monthly rent).
If you were to buy a house on the other hand, there is no compulsory maintenance fee, however the up-keep of the property will be solely your responsibility. The cost of maintenance for a house will depend on the size and age of the property and is something you should consider. (3)
- Career
Many young professionals are changing their job every couple of years in order to gain experience in different sectors and advance in their career. This often means moving from one city to another. This relentless moving can be a determining factor as towhether someone decides to rent or buy a property.
A recent employment survey conducted by Accountemps only affirms the growing career trends of career cruising. (4)
If you are planning on changing your job in the next couple of years, perhaps buying a property wouldn’t be the best option for you.
- Travel
For many students, taking a gap year before going to university simply isn’t an option. With a hike in tuition fees, many students can’t afford the luxury of traveling for a year before they continue with their education.
Graduate gap years are becoming more popular. Those who missed out on a gap year before university are saving up and traveling after they graduate.
This new trend means that many graduates would prefer to rent and save for travel, rather than begin a long financial process of buying a property. (5)
- UK Property Prices
UK property prices are out of reach for many first time buyers, with overseas investors quick to snap up any development opportunities (6).
The average house price in the UK is now around £275,000 (7). This has increased by 10% from last year (8), which will mean you will need at least £27,500 for a 10% deposit on a property worth £275,000.(7) Saving for a deposit means first time buyers may have no option but to rent.
7. Qualifying for a Mortgage
Once you have decided to buy a property, you will need to save at least 5% of the property value for a deposit and then qualify for a mortgage.(9)
It is now far harder to qualify for a mortgage than ever before. Stricter tests have been introduced to try to prevent banks and building societies lending as recklessly as they did before. (10)
If you do qualify for a mortgage and you have saved a deposit, you will also have to take into account the legal fees. According to Which.co.uk, you will need to appoint a solicitor to arrange the purchase of your property, which could cost upwards of £1,000. (9)
- Hutching Up
Recent research from The Mistoria Group, a leading student property investment specialist, reveals that there has been a 23% increase in the number of young professionals choosing to live together, otherwise known as hutching up, in HMO rental properties after university. (11)
Many students live together in an HMO during university and find the social aspects and shared utility bills far more appealing than buying a property and living alone.
There are pros and cons to both renting and buying property and it is important to make the right decision for your circumstances. If we could give you one piece of advice it would be to do as much research into the property market as possible before making a final decision.
If you are thinking of investing in property there are a number of ways to do this, without having to live in the property yourself. Property Moose offer investors a chance to invest in property from £10. The property is crowdfunded and then tenanted accordingly.
Disclaimer and Legals
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your Capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
Sources
1.http://www.zoopla.co.uk/property-advice/rent-or-buy/
2.http://www.thisismoney.co.uk/money/mortgageshome/article-2580895/Renting-vs-buying-Home-ownership-holy-grail-renting-gives-choice-flexibility.html
3.http://www.telegraph.co.uk/finance/4461269/Dont-be-a-slave-to-service-charges.html
4.http://www.entrepreneur.com/article/242439
5.http://www.huffingtonpost.co.uk/2014/03/28/why-you-should-take-a-gap-year-after-university_n_5047751.html
6.http://www.thisismoney.co.uk/money/mortgageshome/article-2394704/Foreign-investors-snap-70-new-build-homes-central-London.html
7.http://bit.ly/13beCTs
8.http://www.thisismoney.co.uk/money/mortgageshome/article-2908009/Property-prices-10-year-slowest-growth-April-ONS-says.html
10.http://www.telegraph.co.uk/finance/property/11482696/Renting-your-way-to-poverty-welcome-to-the-future-of-housing.html
11.http://www.propertyreporter.co.uk/landlords/rise-in-young-professionals-opting-for-hmos.html
