The Game of Life

Table of Contents

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1 Rent or Buy?

  • Everyone wants to live somewhere nice. This means different things to different people though.
  • You could rent a house. This means that you pay the owner (known as the Landlord) of a house/flat/bungalow/castle a fixed amount every month and in exchange, you can live there.
  • This comes with a number of perks:
    • If anything breaks (e.g. the boiler, doors, windows, leaky roof), you call the Landlord and it's their responsibility to fix it.
    • You're only commited to the house for a relatively short spell (e.g. 6 momths). At the end of that time, you can either sign up for another 6 months or move to another house.
    • You don't have to worry about organising mortgages,
    • You can generally (not always!) get a nicer house for less monthly cost than you'd be paying with a mortgage.
  • You could get a mortgage. This is a large bank loan that you pay off over a considerable time (25 years normally), paying interest on top of the cost of the house every month.
  • This also comes with a number of perks:
    • One day, you'll own the house. You won't have to pay to live in the house ever again; renting is for life.
    • If you want to knock down a wall, fit a hot tub, build a conservatory or fit a new kitchen, no-one can stop you.
    • Once you own it, you have a (typically) 6-figure investment that will slowly increase in value over time.
  • Both options sound attractive; there's no real right answer here. Both options also have pitfalls though.
  • Renting negatives:
    • You can't change the house without the landlord's permission.
    • If the landlord decides to sell the house one day, you may not have the option to extend your contract after it's end-date.
    • You've got to pay rent forever. Someone with a mortgage wlil eventually pay it off and enjoy a lot more disposable income.
    • The majority of landlords are very good, but some may be slow to respond when there are problems with your property.
  • Mortgage negatives:
    • You're on your own. If something breaks, you've got to pay for it, or leave it broken.
    • To get a mortgage, the bank will expect you to pay around a 5% deposit of the total cost of the house. A £200,000 house means you'll need to be able to take £10,000 to get the ball rolling. You then have legal fees of around £2000 to pay for a solicitor to transfer the ownership, stamp duty to pay on the purchase and you'll need to ensure you have the building itself insured in case of fire or major damage.
    • If you ever want to move house, you'll need to sell the house through an estate agent. It can take months or even years to sell, and they'll take a percentage of the sale price (typically around 1%) as their fee.

Try It

  • Let's find somewhere to live, two different ways.
  • Start by opening your budget sheet from last lesson. We'll be changing the value of the rental cost (G4) to see the effect of living in different properties.
  • Visit in a new browser tab, type 'Bourne' in the location bar and then click 'To rent'.
  • Choose Bourne, Lincolnshire on the next page and click 'Find properties'.
  • Sort the results by price (highest first).
  • Using the pcm (per calendar month) values quoted, try seeing which you can afford.
  • Anything that leaves your weekly disposable income as a negative number is one you can't afford, as it'd mean you'd be getting more overdrawn every month and would eventually be evicted.
  • Find the cheapest property that you feel you'd be content to live in, and leave that value in your spreadsheet. How much disposable income do you have?

Buy It

  • Let's try a mortgage for comparisson.
  • The approach here is slightly different. You need to tell the bank how much you earn, then they'll tell you how much mortgage they're willing to lend you.
  • Banks will normally lend up to 3.5 times your annual salary as a mortgage. For instance, if you earn £25,000 a year, you could borrow up to £87,500 for a house.
  • You'd also need to find a deposit of 5% of the house you want to buy on top of this. Let's say you'd managed to save £7500, so you could take a mortgage for up to £95,000.
  • Open another browser tab and visit again. Search the same location, but this time only show houses up to £100,000 (people expect to take a little less than they're asking for).
  • How do these houses compare to the ones you were looking at?
  • You'll need to know how much the mortgage will cost you each month.
  • Visit this page in a new tab, and enter £87500 in the mortgage debt box. Leave everythin else and click Calculate. You don't need to enter your email address.
  • How much is your mortgage each month? How much money do you actually pay for the house by the time you pay it off?
  • Try this again, but change the interest rate to 5%. What happens?

Badge It

  • Update your spreadsheet with the rent or mortgage for the property you want.
  • Create a guide for people leaving university to explain how housing works. You should cover:
    • How renting and mortgages work
    • Advantages and disadvantages of Renting vs mortgages
    • Which you think is better, and why.
  • Your work will be graded as follows:
  • Silver: Concepts of renting and mortgage explained.
  • Gold: Advantages and disadvantages explained, justifying points made.
  • Platinum: Clear, well-written guide with good spelling, punctuation and grammar. Difference between interest-only and reypayment mortgages explained.