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PROFIT FROM PROPERTY
Should You Buy Or Rent?
With the current market uncertainty and the ever-growing threat of the credit crunch, is now a good time to be buying property, or should you simply rent? And if you are going to buy, what are the golden rules?
Merryn Somerset Webb, author of Love Is Not Enough, The Smart Woman's Guide to Money tells us how to make the most of our finances.
Is Buying Property Always A Good Thing?
'Don’t assume property is a good investment because it has been for the last decade. It may not be.'
'Sometimes rent is dead money, sometimes it isn’t. It just depends on the market conditions – on the cost of buying and on the cost of renting. Basically, if house prices are rising and it costs less to pay the interest on a mortgage and to maintain your house than it does to rent a similar property, then buying is a good idea. You are paying off your mortgage bit by bit and gradually gaining ownership of an appreciating asset but for less than it would cost you to rent it. If, on the other hand, house prices are flat or falling and it costs less to rent than to pay mortgage interest and maintain a property, renting is a good idea.'
'What you save by renting instead of buying can be saved or invested so you can buy when circumstances change if you want to.'
'Obviously, a few other factors are relevant to your decision (when you buy you have to pay stamp duty, legal fees and so on, so you have to add these in when you do your sums) but the equation basically comes to house prices, rental prices and interest rates.'
'If you decide to buy, make sure you are doing it inside your comfort zone: your mortgage must be completely affordable.'
Offload Your Mortgage
'It is entirely possible to get a 100 per cent mortgage these days, no deposit required. Thi might be something to consider if you are utterly convinced that house prices will be moving up by a large percentage in the very near future. If that is not the case a 100 per cent mortgage is simply foolish.'
'More than anything you want to get rid of your mortgage as early as you can. Not having it hanging over you as a huge debt burden is enormously liberating. It is also an extremely tax-efficient way to use your savings. A higher rate tax payer would have to have their money in an account paying 7.6 per cent to get the equivalent benefit of overpaying on a mortgage charged at 4.5 per cent, for example. A basic rate payer would need to get 5.6 per cent. Overpaying can also save you thousands. A £100,000 repayment mortgage at 4.5 per cent over 25 years will cost a total of £166,700. Cut that to 15 years and it is only £137,700 in total. So overpay as much as you can and pay off lump sums if and when you can too. It’s the best way there is to save money.’
More About Merryn Merryn Somerset Webb is the editor of the respected weekly financial magazine Money Week. She is an experienced journalist and writes regularly for The Sunday Times, Harpers and The Week as well as a frequent radio and television commentator on financial matters.
For more information
Love Is Not Enough, The Smart Woman's Guide to Money is published by Harper Collins (£8.99). Using her extensive experience as a financial journalist, Merryn Somerset Webb’s witty and appealing guide offers a series of practical and sensible measures that will let you have your financial cake and eat it. It's aimed at women, but the advice within is just as useful for all you men out there...
