Buying or renting a home – which is best?
It’s an age-old debate, but one that really comes down to individual needs and circumstances.
To help you make the decision, we’ve explored the pros and cons of buying and renting and outlined everything you’ll need to consider…
Is buying better than renting in the UK?
Whether it’s better for you to buy or rent will depend on your personal and financial circumstances.
If you’re not able to afford a home of your own, renting is a great way to live in the area you like and in a property that suits you.
However, owning a property can give you more security for later in life and enables you to put down roots and create a real ‘home’.
Is it cheaper to buy a house or rent a house?
Renting a property is generally regarded as a cheaper option than buying a home.
That’s because the costs associated with buying are considerably higher.
However, mortgage payments are often cheaper than paying rent.
At the end of June 2021, asking rents in the UK had grown by 6.2% compared with the same time in 2020 and 2.6% between March 2021 and June 2021.
The average monthly rent for the UK, excluding central London, meanwhile, topped £1,000 for the first time in June 2021.
With interest rates at record lows, however, many homeowners have seen their monthly mortgage payments drop, while those applying for new mortgages have found very attractive fixed-term interest rates.
Renting a home
The advantages of renting
- Renting a property gives you more flexibility to move quickly
- Renting a property can be arranged quicker than buying a home
- Renting carries a lower financial risk than buying
- By renting, you won’t have to worry about maintenance or repairs
- By renting, you may be able to live in an area where you couldn’t afford to buy
The disadvantages of renting
- By renting, you’re paying off your landlord’s mortgage rather than your own
- It’s harder to put down roots and settle in an area when you’re renting
- A rental property isn’t yours – so you can’t decorate or make changes
- Your rent could increase when your tenancy is due to renew
- You won’t benefit if the property grows in value over time
Buying a home
The advantages of buying
- Buying a property means you have an investment for the future
- You could benefit from capital growth in your home over the long term
- It’s your home – so you can decorate it and make changes that suit you
- You have the added security of owning your own home
- The mortgage you pay may be cheaper than rent
The disadvantages of buying
- Buying a home comes with a lot of additional costs
- Owning a property can make things complicated in the event of a spousal break-up
- Interest rates can go up, which means you may end up paying more on your mortgage
- Selling a home can take time, which means it can be difficult to move quickly when you own your property
- Homeownership can be stressful and pressured due to the finances involved
So, is it better to rent or buy?
If you’re a first-time buyer, you may find it financially easier to rent rather than buy your own home.
- The additional costs with renting a property aren’t as high as buying
- You may be able to pass tenant financial checks more easily than mortgage lender checks
- You won’t have to pay as large a deposit when renting as you would when buying
However, according to research, buyers in London are £4,000 per year better off than renters, due to cheaper mortgage rates and rising rental costs in the capital.
So, in the long term, you may be better off buying if you’re able to and if you’re not planning to move for a long time.
How long does it take to save for a house deposit?
Rising house prices during the pandemic means the average first-time buyer deposit in the UK has now risen to £58,986, according to the Halifax.
In London, meanwhile, the average first-time buyer deposit is now £111,321.
That means a first-time buyer couple with a household income of £100,000 and saving £1,000 per month would take just over nine years to save enough to buy a home in London.
How much deposit should I save?
The larger your deposit, the less you’ll need to borrow through a mortgage.
That means your monthly repayments should also be lower.
A larger deposit could also give you access to more attractive mortgage interest rates, further lowering your monthly repayments.
Most mortgage lenders will request at least a 10% deposit, although first-time buyers have options to a range of schemes to help them on to the property ladder with a lower deposit:
- Help to Buy – 5% deposit and 20% (40% in London) equity loan
- Shared Ownership – 5% deposit
- The 95% mortgage guarantee scheme – 5% deposit
Things to consider before buying a home
Buying a home is the biggest financial commitment you’re ever likely to make – so the decision requires lots of thought and consideration…
1. Ask yourself where you’d like to be in five- or 10-years’ time
Are you likely to need to move again within five or 10 years? If so, you may be better off renting a property until you’re ready to settle in one area.
Buying and selling property involves a lot of major costs, including:
- Possible stamp duty when buying
- Solicitor fees when buying and selling
- Estate agent fees when selling
- Removals costs when buying and selling
These costs can mount up and if you’re likely to move again within a short period of time, you’ll be paying many of them again very quickly.
2. Do you prefer security, or being free to move around as you please?
Some people like the security of putting down roots, while others prefer to have options to move around.
If you’re on the side of security, buying a home could be the right step for you.
But if you’re more of a ‘free spirit’ and likely to move between towns and cities more frequently, renting will give you more flexibility to do that.
3. Are you likely to benefit from inheritance later in life?
Inheritance isn’t something any of us like to think about as it involves losing loved ones.
But if you’re likely to inherit money from parents or other relatives in the future, this can affect your decision on whether to buy or rent.
If inheritance is unlikely, you may want to try to buy your own home sooner, as this could give you added financial security for the future and boost your pension.
But if you’re likely to inherit money in the future, you may be happier to rent for the short to medium term and then invest your inheritance in your own home further down the line.
4. Are the ongoing costs of owning a property affordable?
Being a homeowner means you’ll be responsible for maintaining your property and ensuring you’re protected financially – and that means lots of ongoing additional costs.
The ongoing costs of owning a property could include:
- Maintenance costs for major items like boilers and heating systems
- Unexpected maintenance costs like repairing a damaged roof or dealing with leaks
- Ongoing costs for insurance like buildings and contents cover
These costs aren’t generally your responsibility if you’re renting, so you’ll need to make sure they’re affordable if you’re planning to buy.
Things to consider before renting a home
Renting a property may not come with the same up-front costs as buying, but it’s still a major commitment…
1. Are you likely to move, perhaps due to work, within the next two years?
If you’re likely to move again within a short period of time, renting could give you the flexibility to do so.
You’ll have no property to sell, which can take time, and you’ll just need to give your landlord the appropriate notice.
Tenancy agreements usually last between six months and two years, although longer agreements are sometimes possible, so make sure you sign an agreement that suits your future plans.
2. Would you benefit more from renting and paying into a pension scheme, rather than buying a property?
While retirement might seem a long way off, it can pay to start thinking about how you’ll fund your future now.
Buying a property can be a great way to add financial security later in life and boost your pension fund, but there are other options, too.
Depending on your financial circumstances, you may be better paying more into a pension now and renting, rather than committing to homeownership.
The best way to explore your options is to speak to an independent financial advisor or financial planner.
3. How important is a property’s look and style to you?
If you’re keen to put your own stamp on a property and make it feel like a home, renting might not be the best option.
While some landlords might be happy for you to decorate their rental property, others may be less enthusiastic.
And either way, you should never do decorating work without your landlord’s permission.
By buying a property, you’ll be able to make it your own and make it work for you.
4. Are you uncomfortable with taking on lots of financial risk?
Owning your own home is a huge responsibility.
Your mortgage will be secured against the property, so if you’re unable to pay it back, you could end up at risk of losing your home.
You’ll also be responsible for all the other costs that come with homeownership.
If you don’t feel ready for that kind of financial responsibility, you may be best off renting until you do feel ready.
Should I rent or buy?
If you’re financially ready to buy a home and you’re looking to put down roots, homeownership can be a great way to get the home you want and secure your financial future.
But if you’re not yet ready to settle down, or you’re not able to fund a property purchase, renting while saving to buy in the future could be the best approach.
If you’re unsure on what to do, speak to an independent financial advisor, who’ll be able to assess your circumstances and advise on the best way forward.