Owning your own home, or intending to, has been a New Zealand tradition for generations. But that doesn’t mean it’s still the best option for you today.
People used to smoke on aircraft, we were once encouraged to save a tree by using plastic instead of paper and bars had to close at 6pm. Things change. So never mind what previous generations did, or what people are saying you should do. Today, it’s probably more about what’s possible, and what best supports your goals and aspirations.
To help you start thinking about whether to buy or rent, now or in the future, here are some of the main things to consider.
Success in life comes in many forms
There are countless definitions of success, but they all typically centre on achieving a favourable or desired outcome. Some would say it’s most important to be successful in your own eyes, which may or may not include feeling that others see you as successful. An important first step is recognising what you want to achieve.
When it comes to deciding whether to rent or buy, it’s important to think about which option best serves your goals. If you’re in this with someone else, that means both of your goals.
So before we get into the money side of things, here are some wants and needs to consider:
- What would you most like to do in the next five years or so, i.e. start a family, travel overseas, gain a new qualification, build your career, save a cash fund for added security?
- Do you want to live somewhere that’s comfortable and finished, or in something you can renovate and improve?
- Where would you like to live right now and is that likely to change anytime soon?
- Does work or children’s schools limit where you could live? How far are you prepared to commute? Is starting afresh in a new suburb, town or city a possibility?
- What do you need in a home, i.e. just somewhere to crash at night, a place to linger and unwind, multiple bedrooms, outdoor space for pets, office space, connectivity, daytime quietness for shift work?
With these and many other questions answered, you’ll have done the groundwork required for deciding between renting or buying. Your answer will be the option most likely to support your idea of success.
The advantages of renting instead of buying a home
Flexibility
If the freedom to change where you live would support your goals, then renting may be just what you need. There are plenty of people in this category and here are some reasons why you might be one of them:
- You’re looking forward to international travel once the borders open again
- You have plans to grow your career or add some overseas experience to your CV in the next few years
- You’re ready for promotion and want the flexibility to apply for roles anywhere in New Zealand
- Your current city, seaside town or country lifestyle is driving you nuts and you’re busting for a change
- You think it’s important to try living in different places before putting your anchor down somewhere or starting a family
Affordability
Renting is typically cheaper than owning, although less so for some lower-priced properties that are popular with first-home buyers. Here are some financial reasons why renting might better support your goals for now:
- There’s no way you can get a house deposit together or maybe you could in a while, but only if you sacrificed more important goals that won’t come around again
- Buying a home would leave you no money for emergencies
- Keeping up the payments on a mortgage for the property type and location you need would be impossible or so tight it would constantly stress you out
- You have more important short-term goals that require ongoing funding for a while, so getting a house can wait
- You wouldn’t have the money to deal with home maintenance, especially major projects like replacing the roof, fixing leaks or painting the outside
Time saving
If you rent instead of buying a place to live, you won’t need to spend time on things like home maintenance projects and renovations to get house into good shape. Here are some reasons why renting conserves your time:
- You want to work long hours to build your career or savings, so you just need somewhere at night that’s small, modern, maintenance-free and close to work
- You’re studying to improve your income potential, so spare time is non-existent
- You have time-consuming sport, fitness, art, music, community volunteering or other goals that are top of your list right now
- You want to provide care and support for elderly parents or other dependant people, including looking after their home and garden
The disadvantages of renting a home
Uncertainty
- For some people, knowing that their tenancy (rental agreement) could be terminated is a constant nagging concern, even though there are some protections in place
- If you’re on a fixed-term rental agreement, usually 12 months, there’s no guarantee it will be extended, although it will roll onto a periodic tenancy after the fixed term
- There are certain reasons that allow a landlord to terminate a periodic tenancy, but in most of these cases they must give 90 days’ written notice or, in a few cases, 63 days’ notice
- If your tenancy does end, you may struggle to find and secure a similar place in the same area, which could be a real concern if you have certain work commitments, community ties or children at a local school
You’re still locked in to some extent
Certainty is a two-way thing and landlords have some protection that gives them time to find new tenants.
- If you’re on a fixed term rental agreement you can’t end it early unless the landlord agrees, however you can now ask to reassign it to someone else and the landlord cannot unreasonably decline
- Even on a periodic tenancy, you must give 28 days’ notice, unless the landlord agrees to a shorter time; if you owned a home you could potentially sell in about the same time, but it would cost a lot more
- For more on ending a tenancy, see the government’s Tenancy Services website
Dead money
Paying rent to someone else, so they can pay off their mortgage, can feel like you’re selling yourself short.
- Although paying rent is a bit like paying interest on a mortgage, in that it goes straight to someone else, you don’t gain any benefit when the property increases in value
- You could be missing out on money made by owning a house, which could be accessed later in life by selling and downsizing to something cheaper
It’s just not yours
Renting doesn’t give you complete freedom over the property and for some people this feels restrictive, like you’re permanently visiting someone else’s home. It may also restrict some goals, such as running certain businesses from the garage or home.
- When you rent a home there are usually restrictions on how it can be used, including how many people can live there
Not many landlords allow pets, so having furry or feathered friends may make it even harder to secure a rental property that suits - Although recent laws allow you to make minor changes to the property, with the landlord’s approval, that still doesn’t give you the freedom to ‘make it your own’
- You’ll probably have to pay for any changes you do make, but won’t get any benefit from them when you leave
- Accidents happen; you may still be liable for the cost of repairing damage to the property that’s beyond normal wear and tear
The advantages of buying a home rather than renting
Stability and control
When you own a home and the mortgage payments are within your means, it can act like a rock in a world of uncertainty and change. Here are some examples of how that can happen.
- You can establish a garden and plant fruit trees that provide rewards for years to come
- You can decorate and renovate your home however you want, knowing it will be your sanctuary for as long as you choose
- Your children can attend the local schools for as long as you choose, building a life-long group of friends
- Relationships with neighbours and the local community can grow in strength month by month, year after year
Gradually building wealth
Owning a property has been one of the main ways Kiwis build wealth, particularly for later in life. Here’s how that happens:
- As you repay some of the money you owe (the mortgage principal) you begin to own more and more of your home
- As the mortgage balance comes down, your regular fortnightly or monthly interest payments decrease, so the principal you repay gradually increases each time
- Although mortgage repayments can take up a scary amount of your income at first, things change as you start to earn more – some people think of it as a valuable compulsory savings scheme
- The interest you pay on your mortgage is often close to what you would have paid in rent anyway
- Your potential wealth increases with your property value, giving you more options when you sell, whether you choose to trade up or downsize
The disadvantages of owning a home
Reading the news lately and listening to social conversations, you’d be forgiven for thinking there’s no downside to owning property at all. But it’s not all roses. It pays to go in with your eyes wide open. Here are some of the drawbacks home owners have to deal with:
A huge long-term financial commitment
- Most mortgages take 30 years to fully repay, so that money will be coming straight out of your income for a very long time
- There are costs involved in finding and buying a place, such as:
- Driving to endless open homes
- Getting building inspections, valuations and council LIM reports (which all cost money)
- Paying a lawyer to check the property title and help keep everything on track with the bank, real estate agent and vendor’s lawyer
- Once you’ve secured your new home, there are more costs besides the mortgage, such as:
- Moving expenses
- Council rates
- Home and contents insurance
- Body corporate fees (if you bought an apartment or unit)
Essential furniture and renovations - Ongoing maintenance to protect your investment
Marketing and real estate agent fees when you eventually sell
Nasty surprises you can’t walk away from
No matter how carefully you check things out before buying, you’ll live in your new home for a long time. There’s every chance you’ll have to deal with the unexpected, with no option to simply move away. Here are some potential examples to give you the idea:
- The roof begins to leak, foundations rot or hidden water damage makes itself known in the kitchen, laundry or bathroom
- The water main on your side of the meter develops an underground leak or a sewage pipe breaks under your driveway
- The house next door is sold or rented to people who come and go at all hours or party until late most nights
- A neighbour’s much-loved trees start to show over the fence and keep growing rapidly, until they block all your sunlight and/or view
- The house next door is demolished and replaced with several multi-storey units that ruin your privacy and reduce the value of your home
What next if it looks like home ownership is best for you?
Handy online tools:
- Current interest rates, so you can see lender options
- Online budget planner for working out your available income
- A borrowing calculator that works out how much a bank might lend you
- A mortgage repayments calculator for working out what sort of dent a home loan will put in your income
Helpful in-depth guides:
- First home buyer’s guide, which includes getting a deposit together
- A guide to calculating mortgage repayments, so you can use our calculator confidently
- Types of mortgages, from fixed interest rate to reverse mortgage, all carefully explained
- Your guide to getting a mortgage, the ins and outs of the application process
