Renting or buying: What’s the better choice for students in Hungary?

In a recent episode of a podcast by Pénzcentrum, experts delved into the age-old question of renting or buying a home that many students and their families face. This dilemma becomes particularly pressing after university admission results are released, as students need to secure housing, often far from home.

Renting vs. buying: The debate

With high rental prices across Hungary, particularly in major cities like Budapest, the question of whether to rent or buy is crucial. Although renting may seem cheaper initially, Palkó István, a credit market expert, suggests that buying might be more beneficial in the long run—even if it involves taking out a mortgage, Pénzcentrum writes.

Current market conditions

Rental prices vary widely across different areas. In smaller university towns like Szeged, Veszprém, and Pécs, and in some of the cheaper districts of Budapest, monthly rents for a 50-60 square meter apartment range from HUF 150,000 to 160,000. In contrast, in the more expensive districts, especially in Buda, rents can reach HUF 250,000 to 280,000 or more.

Cost of buying

Currently, a small one-bedroom apartment in Budapest costs around HUF 40 million. With a 20% down payment, the monthly mortgage payment would be approximately HUF 240,000 to 260,000. While this is higher than some rental prices, the potential long-term benefits could outweigh these initial costs.

Calculations and future projections

A detailed analysis compared the costs of renting versus buying over a five-year period. Starting with a monthly rent of HUF 166,667 and a mortgage payment of HUF 242,017, the analysis assumed a 20% down payment. It noted that students typically lack sufficient income to qualify for a mortgage themselves, so the loans are usually taken out by parents.

Over the five years, while the rental payments are expected to increase by 6.5% annually, the mortgage payments remain fixed due to a stable interest rate environment. By the end of this period, the rent would rise to HUF 214,411 per month, slightly less than the mortgage payment.

Long-term gains from buying

The key advantage of buying is the potential for property value appreciation. The analysis estimated that a property purchased for HUF 40 million could be sold for around HUF 54.8 million after five years, taking into account a similar 6.5% annual increase in property values. After repaying the remaining mortgage balance, this would leave the owner with approximately HUF 27.5 million, more than three times the initial HUF 8 million down payment.

Investment comparison

If a student or their family chooses to rent and invests the difference between the rental cost and what they would have paid for a mortgage, assuming a similar 6.5% annual return, the investment would grow to around HUF 14.9 million after five years. This amount, however, is still significantly less than the potential gains from property ownership.

Conclusion

The current market analysis suggests that, despite the higher initial costs, buying a property could offer greater financial benefits than renting. However, the decision depends on individual circumstances, including financial stability and future housing needs.

Read also:

• How the rental market is shaping up in Hungary after the announcement of university admission scores
• Hungarian universities admitted more than 90 thousand freshmen

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