Rent or buy
🕑 7 minute read
Should I rent or buy a home?
When making the decision to rent or buy a home, there’s no simple answer. There’s a lot to consider – personal circumstances, short-term goals, finances and plans for the future.
Is it cheaper to rent or buy a home?
In 2021, both rental costs and house prices in the UK rose:
- The average rental payment outside London is now at £730 a month (up 2% from the previous year).
- The average rental payment in London is now £1,430.
- The average house price is £262,954 (up 7.1% from the previous year), a monthly mortgage payment on this would be around £1,100 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, however, is that you aren’t paying towards one day owning the property outright – your money is going to a landlord.
Renting is cheaper in the short-term, as a rental deposit also isn’t going to be anything like the amount you need to save to be able to put a deposit down on a house.
But cheaper in the short-term doesn’t necessarily 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 currently owe on your mortgage 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. So, for example, if your property value rises by £30,000, you’ll have £30,000 more equity in the property.
Advantages of renting
There are plenty of benefits to think about if you’re considering renting:
- It’s cheaper.
Generally, your monthly rent will be lower than a mortgage payment and you don’t need a hefty deposit.
- Your landlord is responsible for repairs.
If the boiler breaks, for example, your landlord will pay for a new one. If you owned the property, you’d have to pay.
- It’s flexible.
Depending on the length of your lease, it’s much easier to move on if things don’t work out or your circumstances change.
- It’s easier to budget.
Rents are generally fixed and you don’t have to fork out if something needs fixing or replacing.
- You often get a better location.
It’s often possible to rent a property in an area you wouldn’t be able to buy in.
Drawbacks of renting
But there are some drawbacks too:
- You aren’t paying to eventually own the property.
Owning a house means each payment is taking you one step closer to owning it, while rent goes into someone else’s pocket.
- The landlord could increase the rent or ask you to move out.
While most leases have rent fixed for a set period, the landlord can put it up if they want to. If you’re on a rolling contract, the landlord could end it before you want to leave.
- Landlords can be unreliable about repairs.
Getting broken appliances and faults fixed can take time, and landlords won’t usually let you sort it yourself.
- You might not be able to have pets.
While some landlords are willing to be flexible, finding a rental property where you can have pets can be tricky.
- You can’t usually redecorate.
Having your own place mean you’re able to make it your own.
Advantages of buying a home instead of renting
There are plenty of advantages to buying a house too:
- You’ll own the property at the end of the term.
Once the mortgage is paid off, all the equity in the house is yours.
- You can decorate any way you like.
When you own your home, you don’t have to worry about anyone else’s rules or tastes.
- You can have a pet.
When you own your home, there’s no-one to say your furry friend isn’t allowed.
- The value of your property could rise.
As the value of your house goes up, you could make money when you sell.
- A landlord can’t change your rent or tell you to move.
Apart from changing interest rates – which can make your mortgage repayments go up or down – how much you pay and how long you stay there is up to you.
Drawbacks of buying instead of renting
But there are some drawbacks too:
- There’s less flexibility.
Moving house when you own is much harder, as you’ll need to wait for the property to sell, and pay stamp duty.
- You’ll need the deposit which can be hard to save for.
Most lenders ask for a deposit of at least 10% of the property value.
- You’ll have to pay for any repairs.
When anything goes wrong, it’s up to you to fix it, and with expensive repairs like roofs and boilers to consider, the costs can really add up.
- Your home could be repossessed if you don’t keep up to repayments.
Any mortgage you take out is secured against the property so your lender can take it back if you don’t keep up your mortgage payments.
- Monthly repayments can change due to interest rates.
Even fixed rate mortgages can change once the term runs out, and a jump in interest rate could see your monthly payments rise.
Questions to ask when making the decision
Can you afford a mortgage deposit?
A mortgage deposit is a substantial amount of money and you’ll need to make sure you can afford it. If you won’t be able to afford a deposit for a mortgage, you may need to rent, at least in the short-term. A strict budget, financial gifts from family, or savings may help you to afford to buy a property.
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 makes this a lot easier.
Can I afford the unpredictable costs of home ownership?
All homes come with costs you might not be expecting, like broken plumbing, a leaky roof or broken boiler that’s going to need replacing. Repairs might costs hundreds of pounds – or thousands, so it’s important to make sure you have some cash set aside in case of emergency.
Find and apply for the right mortgage with a little help from us. Whether you want to take that first step or plan your next move, your search starts here.