Renting VS buying a home: what’s better?
The longstanding debate over whether it's more beneficial to rent or buy a home has recently reignited, making it one of the most extensively discussed topics among individuals and players in the real estate industry.
It is a well-known fact that Italians prefer to own their homes. However, in the current economic climate, where inflation is skyrocketing and mortgages are increasingly expensive and difficult to obtain, many are questioning if it is still convenient to buy a home as opposed to renting it.
There is no definitive answer to this question, as both options have their own merits and drawbacks, which must be carefully assessed based on individual needs and circumstances. Nevertheless, there are some factors that should be taken into consideration during the decision-making process.
Renting vs buying a home: the factors to consider
Both renting and buying a house require a stable income and a significant financial commitment. Renting a home can be advantageous for those who prefer to avoid the burden of a long-term financial commitment. Additionally, renting can provide access to specific areas or neighborhoods where it might be too expensive to buy. On the other hand, buying a home requires a significant upfront investment that may involve dedicating resources for an extended period. However, it also enables the accumulation of wealth over the years.
Furthermore, it is essential to consider the real estate market. Monitoring the fluctuations in rental rates and property values can provide valuable insights into current and future trends. Similarly, evaluating the appeal of the urban environment in terms of services, quality of life, and future growth is equally important.
Beyond market considerations and economic convenience, there is a fundamental aspect to take into account when deciding between renting and buying a home: one's long-term goals and life plans. Some may prioritize the flexibility of renting due to personal or professional reasons, while others may seek the stability and security that homeownership can provide.
Mortgage rates are on the rise, but so are rents
The repeated increases in interest rates implemented by the European Central Bank (ECB) as a measure to counter inflation have resulted in a significant increase in mortgage rates. According to data released by the Bank of Italy, in March, the interest rates on loans granted to families to purchase a house reached 4.36% (including additional charges), more than doubling compared to the same period the previous year when they stood at 2.01%.
However, it's worth noting that in this economic scenario, rents are also subject to increases. Property owners have started raising the initial rents in anticipation of further price hikes, since rental contracts with a flat tax rate, which are more advantageous from a tax perspective, do not allow for adjustments to accommodate inflation. Consequently, there is a widespread surge in rental prices.
Consequently, there is a widespread surge in rental prices. These short-term rentals are proving to be more financially beneficial for property owners and, more importantly, carry fewer legal risks. This phenomenon is driving up rental prices for the (few) remaining properties still available for traditional medium-to-long-term leases, especially in major city centers.
Buying a house is a long-term investment
While renting offers greater flexibility, which can be particularly advantageous for those working in industries that demand high mobility or those who prefer to keep their options open for the future, buying a house continues to be a sound investment, especially in the long run.
Paying a mortgage enables the gradual accumulation of wealth, something that renting does not allow. By wisely selecting a property on the market, one can anticipate its value to appreciate over time, potentially leading to substantial gains upon resale. Therefore, it is essential to seek guidance from an experienced real estate consultant who possesses extensive knowledge of the local market dynamics.
Certainly, purchasing a house requires a substantial initial capital, typically around 20% of the property's value, and often access to a mortgage, which has become which has become anything but simple recently. However, while traditional financing options are increasingly difficult to secure, there are alternatives such as the green mortgages, which are specifically designed for the purchase of environmentally sustainable homes.
Green mortgages are not only easier to obtain but often come with lower interest rates and more favorable terms. Green mortgages are not only easier to obtain but often come with lower interest rates and more favorable terms.
Tax incentives for home purchase and renovation
Finally, it is worth considering the tax incentives available to potential homebuyers, which represent an additional stimulus for purchasing.
These incentives range from the possibility of enjoying reduced taxation when buying a property intended for primary residence to first-home benefits for under 36. These benefits, based on the Individual Income and Assets Declaration (ISEE), include exemption from paying registration, mortgage, and cadastral taxes, plus a tax credit equivalent to the VAT paid.
For those who purchase a property to renovate, there is also the Renovation Bonus, which allows a deduction of 50% of the expenses incurred for renovation works (up to a maximum of 96,000 euros) during the year 2023. This incentive represents a significant opportunity for those who wish to improve or adapt their home according to their needs.