Rent or buy, without the spreadsheet
The answer is usually decided by one number: how long you will stay. Everything else is detail...
There are calculators for this, and they all ask twenty questions and then give an answer that changes if you nudge the interest rate. This post asks one.
How long will you stay?
Buying has a fixed cost that renting does not: stamp duty, legal fees, the survey, the mortgage arrangement fee, and the cost of selling at the other end. Together they come to about five to eight percent of the price. That cost is the same whether you stay for two years or twenty, so the longer you stay the thinner it is spread.
- Under three years: rent. You will not recover the buying costs.
- Three to seven years: it is close, and the decision belongs to the other factors.
- Over seven years: buy, if you can, almost regardless of the market.
The other factors
The deposit. Money in a deposit is money not invested elsewhere. At a five percent deposit that hardly matters; at forty percent it is the biggest number in the comparison.
The rent-to-price ratio. If a year's rent is less than four percent of the purchase price, renting is cheap where you live and the case for buying is weaker.
Your appetite for a boiler. Owners pay for repairs. Budget about one percent of the property's value a year for them, and more for an old house.
What people actually decide on
Whether they want to paint the walls. That is a fine reason, as long as you know it is the reason.
Anita Desai
Twelve years in pensions administration, now writing Atlas full time. Believes every money question has a worked example, and that most advice skips it.
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