When you first leave home, you are faced with the daunting decision of whether to rent or buy your first property. Both have their merits, but which one makes the most financial sense?
A major factor behind this decision is the current state of the property market. At the moment we are in a major slowdown here in the UK so if you buy now you run the risk of your mortgage being higher than the value of the property, ie negative equity, if you subsequently sell it in the next few years.
This is a position you definitely do not want to find yourself in, but is nevertheless potentially a possibility if you buy now, so renting in this instance could be worth considering.
Another factor worth taking into consideration is your current and future employment because if you think you may be relocated in a few years time, for example, then negative equity could be a reality if you buy now because property prices may be slightly lower than they are now when you come to sell.
Renting may also be the better option when rental prices are generally a lot lower than mortgage costs for properties in your local area.
In general though you have to remember that in the long term property prices trend upwards, so if you are renting a property for any length of time you are missing out on any potential capital gains in the meantime.
Although the property market is flat at the moment, house prices will eventually start to rise again and you don't really want to still be renting at this point.
My own opinion is that in general you should try and get on the first rung of the property ladder as soon as possible, because if you look at the bigger picture, house prices generally double every 7-10 years, so the earlier you can buy, the more capital gains you can realise, and the quicker you can secure your financial future.
As a first-time buyer, you are in a strong position because there is no chain involved, which is favourable to sellers and means you can negotiate a better price, particularly in the current market.
Furthermore by buying a property in need of redecoration or renovation, you can not only buy a more affordable property, but you can move up the property ladder quicker by doing it up and adding value, and you can also protect yourself to some extent from falling property prices in the short term.
So overall I personally think that as a first time buyer you should always look to buy your first property if at all possible. The only exception would be if you are planning to move within a year or two, in which case renting would potentially make more financial sense in the current market.
