Buy or rent: the 3 keys for deciding

To become an owner or remain a tenant? The decision is never an easy one, especially in the Grand Duchy of Luxembourg where prices continually climb. Although some assets are clearly overvalued, the risk of a sharp fall in real estate prices seems unlikely in the short term. So, what should you do? Here are 3 keys to help you make the right decision.

Choose based on your lifestyle

To ask yourself the question to buy or rent is above all a matter of knowing your personality, where you are in the course of your life and what your plans are for the future. If you are more of a nomad, if you like to change housing quickly and if maintaining an apartment or a house is not your cup of tea, renting is for you. Similarly, if you do not yet know whether you are going to have a career in Luxembourg or if you are going to live abroad, if your income is still too low or irregular because you are starting professional life, it is better not to buy until you have found both geographical and financial stability. According to numerous experts, it takes on average 7 years to make your property purchase profitable. Unless you are certain you will be staying in the same place you want to buy, consider renting.

Weigh the financial challenges

From a financial point of view, each of the two options has both advantages and disadvantages. Even if the rent you pay monthly is not an investment, renting does not mean throwing money out the window and is less risky than buying. You do not squander your savings and should only be charged for rent and monthly expenses (mainly water, gas and electricity). Everything else is charged to the owner.

As for purchasing, it can prove a profitable investment in the event of a resale, particularly in life of the fact current interest rates have never been so low. But buying also involves a degree of uncertainty one must accept. The real estate market may fluctuate in the future and, ultimately, the money invested in the purchase of your property may have yielded you more if you had invested in the stock market. So much to know before you commit.

Evaluate your budget

Wanting to buy a property is not enough, it is necessary to have the means to do so or, at the very least, to have sufficient repayment capacity in order for the bank to agree to your mortgage loan. To find out if you have a good credit profile, the financial institution will use criteria such as your income (as a rule mortgage payments cannot exceed 33% of net income), the stability of your job, the future development of your professional career, sound financial behaviour (your account is rarely in overdraft and you have no significant debts) and the share of your financial contribution in your purchase amount. Do not forget that many related costs are related to your real estate purchase such as notary fees, mortgage fees, insurance and other enjoyment fees (see our article Real estate purchase: pay attention to "hidden" fees). If you do not have enough money to cover all these expenses, it's best to wait until your piggy bank is full before buying. 

In summary, weigh the pros and cons before you make a decision and, if necessary, take advice from your banker and/or your real estate agent. With their experience in real estate transactions, they can help you.

For more information, see www.ing.lu/immo or visit our agency.

Articles that might interest you

  • Often you hear people say: “Anyway, until I have paid off my home loan it’s the bank who owns my house”. But is it true?

  • It is always the same question that every one of us is asking before signing a home loan with his bank. To gain a more objective overview, let’s analyse them one by one with their respective advantages and disadvantages.

  • The rate remains fixed for a pre-defined period and, at the end of the period, is subject to a revision. The pre-defined period can vary from one bank to another but is generally 3, 5 or 10 years.