Buying or renting? Find out what is the best solution in a high price market

Buying or renting a house? The answer is not easy, given the prices that the real estate market currently practices, especially in large cities. Even with a pandemic, the sector has not shown a decline in values.

And the numbers speak for themselves. This week, the value at which banks evaluate real estate for the purpose of granting mortgage loans will be revealed, but in June it amounted to 1,215 euros per square metre. This represents an increase of three euros compared to the previous month.

According to the latest data from the National Institute of Statistics (INE), the largest increase compared to May was in the Algarve (1%). In the opposite direction, the Alentejo recorded the largest decrease (-1%) compared to May. In the year-on-year comparison, the “most intense” variation of 7.7% can be seen in the Lisbon metropolitan area.

It is true that the value of bank valuations has been growing since October 2020, having slowed in the months from June to September 2020. Apartments continue to register higher bank valuations than homes.

Also, prices in the rental market have not shown much relief and for 2022 the news is not encouraging. The inflation rate for July by the National Institute of Statistics (INE) was 1.5%, indicating the expected increase for non-owners. However, according to the study of idealists, house prices for rent in Portugal fell by 4.7% in one year, i.e. between July 2021 and the same month last year. According to the Price Index of Idealists, at the end of July this year, the cost of renting a house was 10.9 euros per square meter. Regarding the quarterly difference, the decline was -0.7%.

And while values ​​vary from region to region, there is a common thread: At the end of the month, even with the costs of taxes, insurance, commissions, and interest associated with bank loans, renting almost always costs more than buying.

Besides value, there is also a psychological issue. Many Portuguese people value the purchase guarantee: after the credit agreement, there is a guarantee that the house will pass into their hands. With regard to leases, despite renewal rights, the tenant may one day be required to leave. Moreover, no matter how much rent you pay, you will never own the property.

There are still other factors to consider. For example, renting can be the perfect solution for those who are starting their career, want to leave their parents’ home or have no income to buy. Navigation was also mentioned as one of the advantages of this option. In other words, it allows you to move into the house easily given the duration of the contracts, and you do not need to wait for a good deal to sell, as is the case with realtors.

There are other criteria to consider to make the best decision. In the case of a lease, you will have to pay the rent monthly – initially, you will have to pay the rent as an advance, which is a guarantee – and the value of the business, depending on what is agreed with the landlord. In the case of a purchase, in most cases you will have to resort to a bank loan, and in general, financial institutions do not give loans for the entire value of the purchase or assessment.

For those with extra cash, buying a second home can be considered a good investment alternative compared to traditional savings products. Contributing to this trend are interest rates on deposits and other types of savings products, which are not very attractive, which creates the need to find other options.

rent. Rights and duties of both parties

Do tenants have to pay condominium expenses? They will only have to pay the rent – it is updated every year. Expenses such as condominium fees and maintenance work are the responsibility of the owner. But the contract to be signed may provide for exceptions.

The tenant wants to leave the house. Can the contract be terminated before the specified date? Provided that at least six months have elapsed from the contract. You must also notify the landlord in writing 120 days in advance. If you leave early, you will have to pay the rent corresponding to the missed notice period.

What are the obligations of the owner? You must carry out the necessary maintenance work, unless the contract states otherwise.

Can the lease contract be transferred to another person? The lease continues after the death of the tenant, and the landlord must be informed of this state by registered letter with acknowledgment of receipt. Failure to contact compels the person entitled to submit to compensate the owner for damages arising from the omission. In the event of divorce or separation of persons and property, if the lease agreement relates to the family home, its destination may be determined by agreement between the spouses or by court.

What is the duration of the contract? The parties can specify a fixed term or stipulate that it has an indefinite period. If he does not touch on this point, the contract is considered to be valid for an indefinite period.

Purchase. Be careful about choosing a loan

What precautions should I take when choosing a bank? First, you should contact your bank: confirm your position and negotiate. You also have to run several simulations for different deadlines. Always keep in mind the financing terms, commissions, insurance and legal taxes. In addition to simulating 1% and 2% rate hikes, also order calculations for increments in the 3% or 4% range. This way you get an idea of ​​the worst possible scenario. If you conclude that the effort to support the premium is significant, run a new simulation for a longer period. However, the longer the term, the higher the cost of the loan.

What are the main fees? Expect a range of fees offered, which vary from bank to bank. This is the case for analysis or study committees and opening procedures (terminology varies). This fee often includes an evaluation fee. The bank always asks for a property appraisal report, done by a technician. You can also count on paying the Municipal Property Tax (IMI) and Municipal Tax on Onerous Transfers (IMT). Other expenses to be taken into account relate to the work of a lawyer that banks often provide, for example, bureaucratic procedures in the land registry office, financial services and notary offices, among others.

What insurance is required? You need to obtain life insurance, which includes death and disability coverage, with a capital equal to the loan amount, to ensure debt settlement if the holder becomes unable to work or dies. You also need multi-risk home insurance.