InvestmentPersonal Finance

Should I buy or rent?

It’s a question that’s been the subject of many a dinner debate. In the United Kingdom, we’re well-known for being obsessed about buying a house. On the continent and wider, approaches to property are different and buying isn’t seen as the holy grail.

But what’s the right answer?

To our mind, the key question is: what would you do with your deposit if not putting it in the property? Ibrahim and I have both been through the house purchasing journey recently, so we wanted to create something that would help others to make that decision.

There’s a value to your deposit

Because house buying is so ingrained in our minds early doors, many people simply assume that it’s a sensible thing to do. In reality, there’s a whole host of reasons why buying might not make sense.

Key amongst those reasons is if you are sinking say £30,000 of your hard-earned money into your house as a deposit, you’ve lost the ability to use that £30,000 elsewhere.

The reason I personally went for a lower deposit for my own house was because I wanted to invest the extra money into a couple of small businesses. I might have enjoyed lower monthly payments on my mortgage if I put more in the deposit, but I wouldn’t have been able to buy the businesses I have.

Buying a property isn’t as simple as saving up as much as you can and putting it all in a deposit. You need to think about what else you can do with that money. And it needs to be a rational and well thought-out decision, rather than just “renting is throwing money away”. Renting can actually bring lots of benefits like flexibility, maintenance covered, etc.

A calculator that works it all out

Having gone through the pain point ourselves, we wanted to create a tool that helps you to figure it all out.

Introducing the IFG Should I Buy or Rent? calculator. The calculator has been weeks and weeks in the making, and works out whether you’d be better off buying or renting. It factors in increases in mortgage payments, rent, your buying costs, etc to help you understand what will be best for you over the long term.

It’ll even tell you what annual return you need to achieve on your deposit in order to make it worthwhile renting instead of taking out a mortgage!

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  • As an Estate Planner, I find many people (of belief and none) that have a myopic vision that investing in property is the be all and end all or as you say the “Holy Grail”, whether it be their home or more specifically a second property when it comes to a pension in their retirement.

    What they come to realise is that once money is invested in property, it’s very difficult to release capital/equity without incurring some penalty such as capital gains tax eroding their gains. They are essentially locked in. The other thing is for an investment property, looking after a property post-retirement is not always as simple as it sounds even when you do hire some kind of managing agent.

    Why would they want to release capital? For all manner of reasons but primarily to avoid having to pay inheritance tax or for older clients, protecting and preserving their capital from a Local Authority assessment for care funding if not both.

    I feel that if only they would explore all options and perhaps even speak to someone qualified as how how to properly invest their capital, much of the above problems could have been avoided.

    So I’m in agreement that investing in property may not always be the best option despite all of the benefits of owning bricks and mortar, especially from a tax efficiency point of view.

    Reply
  • What about when someone cannot afford the deposit for a halal mortgage?

    Reply

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