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Is it better to continue renting or buy a new flat?

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  • Is it better to continue renting or buy a new flat?

    I wish to buy a 2 bedroom flat which would cost about £220,000 in London.

    I can probably borrow up to 5% deposit from family and am paying about £900 a month for my rent (it's been over 4 years).

    I might be able to increase the deposit to 10% but in either case I think I'll have to get a high interest rate for a 90-95% mortgage.

    My question is is it worth buying a property in my situation or I'm better off continuing just paying rent?

    Please could you help me understand how to calculate this?

    I made this example for myself, does it make sense? is it the way to compare this financially?

    p: property price: £220,000
    d: deposit: 10% = 22,000
    r: mortgage interest rate: 5
    m: mortgage: 90% = 198,000

    interest only:
    £198k * 5% = £9.9k per year = £825 per month

    So, perhaps I can say I'll be £75 better off if buying a flat assuming I can find a 5% rate mortgage of 90%? and whatever I can pay on top of this would go for the capital...

    Many thanks in advance.

    Ben,

  • #2
    Re: Is it better to continue renting or buy a new flat?

    a 2 bedroom for 22000 sounds reasonable , is there a management fee to the flat youre planning to get ? whereabouts in london is this property , I think that plays a role too.

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    • #3
      Re: Is it better to continue renting or buy a new flat?

      If that's likely to be a true reflection of the difference in monthly costs then it has to be worth it, as even if it was costing you the same every month at least you would have the potential to build equity over time (Maybe not short term)

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      • #4
        Re: Is it better to continue renting or buy a new flat?

        many mortgage sites offer you mortrgage calculators including the monthly repayments and amount you could borrow... would recommend that = hsbc have one but not sure if thats for customers only

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        • #5
          Re: Is it better to continue renting or buy a new flat?

          The issue for banks - and potential new buyers - is that the moment there is a loss of equity through property prices coming down, you would then be losing a significant amount of money.

          For example, if prices there fall 10%, you've just lost your £22k.

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          • #6
            Re: Is it better to continue renting or buy a new flat?

            It is always difficult if you are a new buyer. Make sure that you get your mortgage calculations correct and also seek financial advice from professionals so that you can make the right decision that will suit your budget.
            Michelle Alden- Property to Rent

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            • #7
              Re: Is it better to continue renting or buy a new flat?

              New flats can be overpriced - don't compare prices with others recently sold by the builder on the same development - look at similar 5-20 year old flats nearby and see what they are selling for - then work out how much extra you want to pay for having a new flat as you are unlikely to get that extra back in a few yaers time when you sell it.
              RICHARD WEBSTERwww.rwco.co.uk
              As a conveyancing solicitor I want to be helpful (England/Wales only) but can't accept liability for this.

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              • #8
                Re: Is it better to continue renting or buy a new flat?

                Good tip Richard. Also I would suggest holding back and looking for eco developments - I am currently looking at homes for sale Cornwall and there are some properties being developed that have near zero fuel bills. With fuel prices ever increasing, I would seriously think about investing in something which is going to make you better off.

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                • #9
                  Re: Is it better to continue renting or buy a new flat?

                  It sounds like you'd be better off buying as you will have something to show for your money, however do take into consideration that being responsible for your property means extra costs for any building or maintenance work that requires completing and the usual day to day things that a landlord would usually pay for.
                  Looking for a large mortgage?

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                  • #10
                    Re: Is it better to continue renting or buy a new flat?

                    Hi,
                    It might be a good idea to consider 'Rent to Buy' as it's the best of both worlds and still gives you flexibility.
                    Hope this helps,
                    Rachel.
                    www.rachelpropertylady.co.uk

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