Buying or renting a home: which is the better choice in 2024?

The year 2024 has started full of uncertainty for families living in Portugal. Inflation is falling, but purchasing power remains under pressure. House purchase and rental prices, although still rising, are rising at a slower pace. And mortgage interest rates remain high, even though the Euroibor is giving the first signals of a decline.

In this context, what will be better in 2024: buying or renting a house? There is no consensus on this question among the real estate professionals interviewed by idealista/news: there are those who believe that it will be better to buy a house this year. But there are also those who say that there is no unambiguous answer to this question, as everything depends on the financial situation, future prospects and personal preferences of everyone, as well as the macroeconomic situation. What is certain is that buying a house will still be a good option in terms of stability, inflation protection and return on investment in the long run. And renting a home would be a good choice for those with less financial resources and/or a preference for flexibility.

The motivation to buy or rent a home in 2024 varies according to the individual needs and goals of each family, according to various professionals interviewed by idealista/news. Financial capacity, personal preferences (stability or flexibility), lifestyle, professional situation and even everyone's future expectations must be taken into account.

This is exactly what Patricia Barao, Head of Residential Real Estate at JLL, says: "There is no one-size-fits-all answer, depending on the specifics of each family. The decision to buy or rent a house depends not only on financial circumstances, but also on personal preferences, the economic situation, family logistics or professional mobility," she argues.

Buying a house may be more feasible in 2024 for families who have savings and the goal of acquiring assets and stability, as "interest rates will start to gradually decrease", says Luis Nunes, CEO of ComprarCasa. In addition, "buying a house can be a way to accumulate assets and protect against inflation," emphasizes Luis Philip Janeira, CEO of Principal Star. This is because, as everything indicates, "prices will continue to rise, which could lead to an increase in the value of the house in the future", notes, on the other hand, João Oliveira, CEO of Realty One.

For families who prefer flexibility, are in a personally challenging situation or cannot afford to buy a home, "renting may be a better option" because in the short term "renting is usually cheaper than buying", also points out the CEO of Principal Star.

"Buying or renting a home is a personal decision that should be made based on individual needs and desires," says Luis Philip Janeira, CEO of Principal Star.

Buying a home: lower interest rates will be a stimulus

Portugal is a country where the culture of owning your own home is very ingrained. This is why "most Portuguese consider buying a house as a lifelong goal, a way of long-term investment", being "a safe option that can be rented", explains Frederico Abecassis, of Coldwell Banker Portugal, to idealista/news magazine.

And now there are a number of factors that can encourage families living in Portugal to buy a house, which are related to bank financing, but not only:

• Inflation is coming down: the last two months of 2023 saw values below 2%, so the cost of living is stabilizing;
• The euroibor gives downward signals: this is the reaction of the most used reference interest rates for variable and mixed rate mortgages (in a variable period), after the European Central Bank (ECB) decided to leave the key interest rate unchanged in the last three meetings. This downward trend of the euro-ibor "will allow a lower interest rate compared to the past period", emphasizes Frederico Abecassis;
• Easing the stress test: the reduction of the stress test requirement from 3% to 1.5%, adopted by the Bank of Portugal (BdP), allows families to experience a lower burden when applying for a mortgage, making it easier to access loans - although these changes are still more beneficial for refinancing than for new contracts. According to João Oliveira, "this easing of the stress test can also stimulate home buying, as it simplifies the process for families to obtain a mortgage," but he emphasizes that "it is important" to compare mortgage offers and "carefully analyze your financial situation to ensure that you can manage home payments even in the event of rising interest rates" or unforeseen circumstances (such as job loss or unexpected expense increases). On the other hand, the CEO of Principal Star warns that this measure is "temporary and may be reviewed in the future; moreover, easing the stress test does not mean that borrowers will be able to obtain a mortgage that they cannot repay."
• A variety of banking financing options: banks are lowering spreads on mortgage loans to attract more clients, as BdP states. They are also adjusting their mixed-rate offers, which are currently the most sought after by new borrowers, already accounting for over 60% of new mortgage contracts in Portugal.
• New financial support for young people: "The 'Casa Jovem' program offers financial assistance to young people up to 35 years old who want to buy their first home, which can encourage youth to purchase a house, especially if they face financial difficulties in covering initial costs," says Luís Filipe Janeira.

What are the advantages and disadvantages of buying a house in Portugal?

In general, experts surveyed by idealista/news point out several advantages of buying a home that continue to attract families to this housing option, such as:

• Investment in personal property with potential value appreciation;
• Personalizing the home to suit the family's taste;
• Great stability and security;
• Joining the community;
• Future profitability of real estate.

However, there are also less positive factors to consider when deciding to buy a house. Purchasing a home requires a significant investment and entails considerable expenses for a mortgage, insurance, taxes, and property maintenance.

Housing rental: the choice of flexibility and lower initial costs

The motivations of those who choose to rent housing in Portugal vary. For those with a dynamic lifestyle, "preference is given to greater freedom and flexibility in changing residences." There are also those who choose to rent to avoid "emotional" attachment to a place of residence or who are "in a transitional situation in their personal life." Then there are those who prefer to rent a home out of fear of "taking on financial risks." Or simply because they do not have the financial means to buy. It is true that today renting is the primary option, especially for young people living in the country.

There are many advantages to renting a home in Portugal, such as being cheaper for short-term stays, greater flexibility, and fewer responsibilities for maintenance and upkeep of the property. However, renting also has some downsides, such as higher rental costs compared to a mortgage and the instability of lease terms.