The cost of renting or buying property in London has risen dramatically in recent years. If you’re work and social life are based in London yet you are still living at home with parents in London, the home counties, or even further afield and are commuting, timing when to leave home is a tricky affair.
Renting is usually the first option, increasing freedom or moving to a more central location are the most common reasons to move out of home. As a first step, finding a house-share, renting with friends, fellow students or colleagues in London is the typical path forward.
Sharing a property allows you to break down the costs of council tax, tv licences and utility bills into smaller fractions – much cheaper than renting alone. You gain more independence without all the financial burden.
There are financial and personal considerations to weight up, before renting:
Can I find a property with a rental amount no more than 35% of my income after tax? In some cases renters will spend upto 45% of their monthly net earnings on rent, we’d advise you don’t stretch this much though as suddenly money can become tight
Do I have enough savings to cover a deposit of upto 2 months rent and a “buffer zone” of at least 3 months rent? When budgeting on renting, you will often need to put down 2 months rent as a deposit. You may be asked to pay the first months rent in advance too, so thats one quarter of a years rent you need upfront! As a back up you should always have 3 months rent stored away in a savings account that you don’t touch. This is just a good back up for a rainy day or extra expenses you can’t forsee.
Can you afford the costs of renting? Here is a guide to assessing this:
Add together your income
Monthly Income from work / business (after tax)
Income from savings / investments / parents, that is guaranteed each month
Deduct expected outgoings
Debt costs (credit cards, overdrafts, student loan repayments, bank loans)
Utilities: Water, Gas, Electricity, Oil
Maintenance: cleaners, gardeners, cleaning products
Media Services: TV Licence, Satellite or Cable TV, Broadband Internet, Mobile phone
Media subscriptions: Magazines, DVD rental, regular film, DVD, music, iTunes, book purchases
Food & Drink: at home, work and eating out including alcohol and cigarettes
Car: lease or loan repayments, insurance, breakdown cover, parking costs, road tax, petrol costs
Transport: bus, tube or train costs each month
Family costs: childcare, nursery/ schooling/ university fees, nappies/ clothes/ cleaning, school activities and trips
Pets: food, insurance, kennels
Saving & Investment: regular savings, pensions, investment in shares and bonds
Expenditure: shopping, entertainment, holidays, occasions (Christmas, Birthdays, Anniversaries)
Personal care: haircuts, beauty treatments, toiletries and makeup, glasses or contact lenses, dentist visits, healthcare cover (medical insurance), gym, personal trainers, treatments, alternative therapies
Clothing: for you and family members
One off expenditure: weddings saving fund, new car, bike or motorbike, special holidays or sabbaticals
Remember that your current costs will change if you move: will your transport costs be reduced / increased by moving to a new area? If you live closer to the centre will you go out more?
A key questoin is: will the extra financial cost reduce my leisure activities? It’s no fun staying at home all the time because expensive rent leaves no money for the movies, dining out or partying with friends. By the same measure consider if you may have to cut back on hobbies to afford the rent? Perhaps less golf is a compromise worth making for your freedom, or a gym membership can be swapped for running outdoors or swimming in a local authority run pool, for less cost.
It’s good to determine how much you value the extra freedom / personal space that moving out and renting can give you. Ask yourself: am I looking for my own space, or would I get bored and prefer to live with others? Can I live with my friends and keep them as friends?
Should I live with strangers, what are the qualities they need to have? – They should match your own standards, e.g. similar professional background, same lifestyles, and something in common like hobbies or just where you like to hang out.
If I move in with friends… well, do I really like them that much? Mates are great to spend leisure time with. Living together means you suffer all their habits. Cleanliness, noise and different schedules (one who likes to party, one who needs early nights for early morning starts) are the main causes of arguments, along with money… will all renters pay on time or is someone going to be forever chasing the other flatmate(s) for their share of bills?
Will I be living in area surrounded by people like me? You’ll have no fun if you live in an area where there are lots of retiree’s or families if you are a young man or woman looking for nightlife, parties and loud barbeques. See our Neighbourhood guide to find areas where you will be among your own
Special tip: When moving in with others, always have Everyones name on the tenancy agreement and everyone must contribute equally to the deposit… if anyone is not named or doesn’t contribute, they become the liability – they have free reign to screw up and You will be responsible. You may think now ‘they would never do that’ yet people can change in strange ways. I know of 2 best friends who rented together for years. Out of the blue, one of the renters came home from a bad day at work, smashed up his room and left. Never to make contact again despite 5 years of friendship… completely out of character and out of the blue. As his friend had taken out the rental agreement in his name only (to save time with the credit and character checks), he was stuck with the cost of damage and had to pay the rent on his own until the tenancy ended (i.e. twice as much). Moral of the story: be safe, be certain, don’t every be complacent.
Rent or Buy?
Some of you may be thinking about buying a property and moving out of your parents home, instead of renting first. Here’s what to consider:
Financials Do I have enough for at least a 20% deposit (any less is streching your safety net and will push up interest rates… i.e. monthly mortgage costs).
Will the monthly mortgage payments be less than 40% of my after tax monthly income (see our mortgage page here). Remember to account for rising interest rates… to be safe use interest rates upto 8% (yes really!) and see If you can still afford the other bills.
Use the budgeting guide above and remember that owning a home incurs extra costs over renting such as building insurance, service charges/ ground rents an maintenance charges.
Do you have enough left after the mortgage and bill payments and usual living costs (food, toiletries, clothes) to save a ‘sinking fund’ incase I need to make repairs to the property or buy new appliances if they stop working?
Should you be getting help with the mortgage, several products allow a formal agreement where your parents act as guarantors or contribute savings to reduce your mortgage amount, without having to sign them over to you (see offset mortgages here).
Will you have enough money for furniture and domestic equipement (cutlery, crockery, an iron, microwave, washing machine). After all this how much cash do I have left for entertainment/ going out/ hobbies. Is this enough?
How secure is your job? Are you confident you will be in employment for the next few years and that your wages will be stable or increase?
Always keep a “buffer fund.” this is an amount of savings that you never touch, so that you can fund 6 months (preferably a year) of mortgage payments and bills / living costs. With a rental it’s much easier to negotiate and walk away, with a mortgage you can’t. Many Landlords would rather tenants who suddenly can’t pay the rent, let them know then move out early, so they can rent out the property again, rather than sit there not paying rent waiting to be evicted. Mortgage lenders aren’t happy at all if you wan’t to walk away and will hound you for payments until they repossess (and even then could chase you for any shortfall between the sale price and what you owe them).
How easy would it be to sell the property; how long would ithis take if your circumstances changed? A newbuild flat in a block of 150 apartments will mean there is always a supply of properties – this means longer selling times and worse prices. A home in a central area with high demand and mostly traditional properties will usually sell quicker / have better demand and less supply.
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