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Should I rent or buy a home?
🕑 7 minute read
When making the decision to rent or buy a home, there’s no simple answer. You need to consider personal circumstances, short-term goals, finances and plans for the future.
Is it cheaper to rent or buy a home?
In 2023, both rental costs and house prices in the UK have risen:
- The average rental payment outside London is now at £1,231 a month (up 9.3% from last year).
- The average rental payment in London is now £2,567, (up 13.7% from last year).
- The average house price is £279,569 (down 4.6% from last year), a monthly mortgage payment on this would be around £1,530 assuming you put down a 10% deposit with a 30 year term.
Month to month, and depending on where you live, renting can be the cheaper option.
The obvious issue with renting long-term is that you aren’t paying towards one day owning the property outright – your money is going to a landlord.
Renting is normally cheaper in the short term. A rental deposit also isn’t going to be anything like the amount you need to save for a deposit on a house.
But cheaper in the short term doesn’t always add up to gains in the long-term, as you’re not building up equity in the property and reaping the benefits that increasing house prices will have on the property’s longer-term value.
Equity is the difference between what you owe on your mortgage now and the current value of your property. As you pay off your mortgage, your equity will increase. When the price of the property rises, your equity will also increase.
If the value of your property rises, the amount you owe on your mortgage stays the same. For example, if your property value rises by £30,000, you’ll have £30,000 more equity in the property.
Questions to ask when making the decision
Can I afford to buy?
A mortgage deposit is a significant amount of money. You also need to factor in solicitors' fees, stamp duty and your monthly mortgage repayments. If you won’t be able to afford everything that comes with a mortgage, maybe think about renting, at least in the short term. A strict budget, financial gifts from family, or savings may help you to afford to buy a property.
Can I afford the unpredictable costs of home ownership?
All homes come with costs you might not be expecting. Examples of this can be broken plumbing, a leaky roof or broken boiler that’s going to need replacing. Repairs might cost thousands of pounds, so it’s important to make sure you have some cash set aside if there’s an emergency.
Do you know which area you want to live in, long term?
If you’re new to an area, or are likely to want to move around, buying might not be the best option. You might want to move to a new city, a new county or simply a new neighbourhood in the future. Renting may make this easier.