Buy now or rent now and buy later?

This is a practical decision faced by many people. There is a more fundamental decision as to whether to ever buy and might you be better renting all your life.


Financial risks in buying
Interest rates may rise and you will not be able to afford your repayments
House prices may fall

Financial risks in renting
House prices may rise which will make it difficult for you to get on the ladder
Your savings may fall in value
Rents may rise

The tax and welfare systems strongly favour buying over renting

• Capital gains on your home free of tax
• House value is disregarded for means-tested benefits
• Income from savings and investments are taxed while the benefit of your investment in your home is not taxed.

Renting may be a lot cheaper and may allow you to live in the house and area you want to live in

• It's important when doing this calculation to compare the rent paid with the interest paid on your mortgage. It would be wrong to compare rent paid with the full repayment which includes capital.

Renting is a lot more flexible and keeps your options open

• You can trade up or down very easily
• You can move location easily
• You can start a new relationship or end an existing one without the hassle of home ownership issues
• You can use your savings for other purposes e.g. investment or starting your own business

Home ownership is very inflexible

• You may have to move for job reasons and then you will be faced with a decision whether to sell your home or to rent it out.
• If your relationship splits up, joint home ownership is very difficult to disentangle
• If you have any plans to start a business, it would be very difficult to take the risk as you may not be able to afford your mortgage repayments.

A mortgage forces you to save

• This is usually, but not always, a good thing.
  If you are not making capital repayments, you may simply spend the money on your lifestyle.

The non-financial benefits of owning your own home

• Security of tenure makes it easier to participate in the community, schools etc
• Not having the hassle of dealing with landlords getting problems solved etc.
• You have your own furniture and household stuff ( Most houses are rented already furnished)
• You may decorate it or improve it as you choose

Minimising the risk of buying

• Only buy if you can afford the house which you really want. Don't buy just to get on the property ladder
• Maybe rent in the area where you are intending to buy to make sure that you like the area and it suits you for work and social life
• Aim for a 20% deposit to minimise the risk of negative equity

Factors which suggest that buying is better for you

• You have job security
• You are sure about where you want to live for the foreseeable future
• You don't have to borrow excessively to buy the house you want
• You have a family where "nesting" is more important

Factors which suggest that renting is better for you

• You are not sure where you will be working in the foreseeable future
• You are not sure where you want to live
• You may want to start a business. Having a mortgage is a big disincentive to risk taking

If you already have high borrowings, you should not be buying until you have paid off your borrowings

• If you have an investment property financed by a mortgage, you probably should not buy a home as you are already exposed to the property market
• If you have borrowings for your business, you probably should rent instead of buying as you would be too exposed to interest rate rises

Case study - Transferring negative equity to a new home

Mortgage: €300k
Value of apartment: €200k
Salary: €100k
We now have two children and the apartment is too small. We want to buy a house for €300k and borrow another €100k

Click to expand...

It seems absolutely clear to me that someone with €100k in negative equity should not be increasing their borrowings and exposure to property. Their first priority should be to eliminate the negative equity as fast as possible. If they can afford the repayments on a €400k mortgage, they should increase their repayments on their existing mortgage and eliminate the negative equity.

They should stay in their existing home as long as possible.
If they absolutely have to move, then they should rent a suitable home instead of buying one.

Great post so far. Especially need to highlight the "Maybe rent in the area where you are intending to buy". I know too many people who live in areas they don't like because they looked good in the brochures.

One thing about comparing costs, the cost of rent is not equal to the cost of mortgage. For example if the fridge breaks in the rental property, you call the landlord, they foot the bill. If it breaks in your house, you foot the bill.

Brendan Burgess said:

The tax and welfare systems strongly favour buying over renting

• Tax relief on mortgage interest
• Capital gains on your home free of tax
• House value is disregarded for means-tested benefits
• Income from savings and investments are taxed while the benefit of your investment in your home is not taxed.

Click to expand...

All of the above taxes can change and change drastically for the worst. Welfare can only go down and taxes can only rise. A family home may not always be protected from capital gains taxes or welfare calculations. Look at the ''Fair Deal'' system for nursing homes for example. That can also be a downside of owning ones home if one enters long term care. The same treatment of the old and sick could also apply to those on welfare who own homes who might find a % of their home being taken if the welfare system becomes less friendly in that respect. We live in very strange times.
Brendan have I overlooked something but did you omit mentioning the
household charge/property tax and it's potential anecdotally to cost the average householder a 1000 Euro a year if you compare us to other countries which charge such a tax ?

Personally long term I will retire to somewhere sunny and already own land in the med which is doing quite well. My control over this land abroad for peace of mind in old age is important to me but it would be as cheap to rent if I choose a less exclusive location. I am breaking even on my modest home in Ireland but if I did not already have it , I would rent.

bullworth said:

Brendan have I overlooked something but did you omit mentioning the
household charge/property tax and it's potential anecdotally to cost the average householder a 1000 Euro a year if you compare us to other countries which charge such a tax ?

Click to expand...

If you compare to the states, the figure is quite a bit higher in lots of locations, circa 1.5% of the property price per year.
Personally I think a site valuation tax with a green fields and per head credits is a fairer system, but we are unlikely to get that.

Joanne Hunt has a good article on the topic in today's Irish Times

[broken link removed]

FROM YOUNG families to established professionals, renting can mean living in the suburb you love with the flexibility to move should work or your children’s schooling demand it. Exhortations that rent is dead money ring hollow to those enjoying the perks of a plum neighbourhood, minus the shackles of a mortgage.


“It’s the ideal compromise for us right now,” says David O’Connell of the home he and his wife Cora McGreevy rent in the leafy suburb of Glasnevin. “Renting is just a more attractive option for us at the moment.”


The couple bought an apartment in the sought-after Addison Hall development in Glasnevin in 2004, the year they married. Both were first-time buyers. But following the births of daughter Evie and son Harry, the family needed more space. Always intending to keep their apartment as a long-term investment, they’ve decided to hang tough, renting it out while also renting a home that better matches their needs.

Click to expand...