Its one of the age old questions that plagues every generation: what’s better, renting a house or buying one? This is something that a lot of people have very strong views about depending on their own personal experiences. For many, buying a home is considered the Holy Grail, and if you are someone who likes to settle down, there are no prizes for guessing why this arrangement might work for you. But on the other hand, many renters now swear by their decisions to never fully own a home of their own, claiming flexibility as just one of many reasons why. So why the big debate in the first place? Well, it’s clear just by looking at the statistics that the price of both buying and renting has shot up enormously over the past few decades or so. A three bedroom property that would have cost you $30,000 in 1975 could now have a deposit of that very same amount – meaning the total asking price could be over $160,000. Renting also doesn’t come cheap, with landlords often racking up their prices in order to prey on people who need flexible accommodation at short notice. Plus, there are frequently hidden fees that come with rental properties, such as administration fees and the first month’s rent upfront. So, with both of those issues in mind, people are passionate about their buy vs. rent argument because there is simply a sheer amount of money involved; and no one wants to hear that they have done the wrong thing with their hard earned cash. If your children are of college age and potentially will be moving into a place of their own in the near future, you may want to sit down with them and have a chat about their options. Try and take yourself out of the equation, whatever your own personal preferences may be. Instead, inform your child of the pros and cons of each situation, and allow them to, therefore, make an educated decision of their own accord.
We are typically all lead to believe that buying ultimately works out cheaper over time than renting. This is because despite the upfront deposit (usually around 20% of the asking price), mortgage payments have typically been lower over the years than monthly rental charges. However, all this does depend on how things are looking in the current economic climate. Both rental costs are mortgage rates are liable to fluctuate, so generally speaking, the overall cost of your property can largely depend on the timing. Take the time to explain to your child the importance of a deposit for a house and what is expected of them when they try and take out a mortgage. There are generally less checks performed on a prospective renter than there are performed on a prospective homeowner. If your child decides to go ahead and rent a property, you may need to act as their guarantor. This essentially means that you need to sign a document stating that if they account keep up with rental payments, you will be able to cover the cost and therefore bail them out. This isn’t an option for people buying a home, and if your child’s finances are not in order, they have only a slim chance of being offered a mortgage in the first place. Lenders will look at things like financial history and credit scores to guage whether or not your child will be a responsible homeowner. So, if your child is not in full time work or has a dodgy credit history, you may want to advise them to rent until these affairs are put in order. At the same time, some unexpected costs can also occur with rental properties, such as landlords and estate agents charging a fortune for things like ‘administration fees’ and asking for a large bulk of the rent upfront. Some questionable landlords can even try and frame their tenants for breaking parts of the house, so take photos of everything when you child moves into their rental property, and keep a detailed itinerary.
Whether your child chooses to rent or buy largely depends on their own personal situation. If they are somewhat of a free spirit and don’t plan on settling down anytime soon, renting could be the perfect option. After all, once you buy a house, you are tied to it, seeing as it is probably your largest financial asset. With a rental property, it is ultimately the responsibility of another, and you are merely passing through. Speak to your child about what it is they want out of their property. Do they want somewhere to feel truly like home, or are they literally just looking for a short term place to crash? More millennials than ever are being unable to buy due to the rise in deposit costs, and are therefore renting as a way to constantly move around the country and even the world. If your child has the travel bug, encourage them to find a house to rent in countries where the housing market is very different to back home. Scandinavian countries like Denmark and Eastern European countries such as Budapest are all famed for their positive attitudes to renting over buying – and as a result, rental properties are cheap and in abundance. Your child may plan on moving around frequently, in which case it makes sense to look for rentals that can be issued on a month by month basis. But on the other hand, your child may be a bit of a homebody, or perhaps they have met someone and they want to purchase a house and get married. In this instance, make sure they are 100% happy with their choice of location – you can’t just up sticks and leave when you are tied to such an expensive asset, so it needs to be somewhere they are confident in.
Flexibility and potential consequences
It has already been mentioned that your child is unlikely to be approved for a mortgage loan if their financial history is unreliable or somewhat colorful. But even the most financially secure people can come into problems occasionally. If your child does stumble across some issues and gets into financial jeopardy, losing the house they bought can end up being a very scary reality for them. In the event of a first missed payment, first see if your child is eligible for any support from the government, such as if they are on a very low income. All in all, however, repeated missed payments can lead to one thing and one thing only: repossession. Personal items can first be repossessed before the home in its entirely is taken too, and your child and whoever lives with them are evicted. This can be devastating on a very personal level and can make it extremely difficult for them to ever get another mortgage in the future. That is why if you are in any doubt over your child’s ability to keep up with payments, lower your price threshold for their property or just rent until they are more secure. A good idea before you start making any offers is to use a mortgage calculator tool to measure, along with your child, whether or not they would be able to comfortably afford a home of their own. However, renting is not completely free from negative consequences either. Despite the fact that a rental tenant’s responsibilities are generally lower than that of a homeowner, you do still have an obligation to take care of the property while you are in it. This means respecting the landlord’s rules and wishes. For example, your child’s landlord may explicitly state that they are not comfortable with pets in the house, so advise them not to break said rule, as it could spark off an eviction. As far as decorating goes, some landlord are flexible – but it is still always better to check with them first before your child starts hammering nails into the walls and putting down a new carpet! Plus, you do always run the risk of coming across a landlord who takes advantage of your child. Many younger people are reporting horror stories of staying in dirty, unsanitary apartments at the hands of rogue landlords. Just as there are certain rules for tenants to abide by, landlords also have to adhere to a set of standards. If something goes wrong in your child’s rental property – the boiler breaks, or a window cracks, for example – it is your landlord’s responsibility to deal with the issue and to foot the bill for it, too. With all these conflicting pieces of information it can sometimes seem difficult to decide whether renting or buying is best for your child, but it is important to judge each case on its merits. With your child, decide what is truly important to them: having somewhere to call home and something that will act as an investment, or having the freedom to move as and when they please.