The Game of Life

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.

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 www.RightMove.co.uk 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?

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 RightMove.co.uk 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?

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.