In the UK, rents are at an all-time high, (the UK average, excluding central London, topped £1,000pcm in June 2021) which makes home ownership more attractive. However, the costs of buying a property can be prohibitive to many.
Renting can seem cheaper than buying a home because you only have to find a deposit worth two or three months’ rent, as opposed to at the very least £35,000 for a purchase deposit. However, once you’ve secured a purchase and a mortgage, relatively low fixed-term deals can mean comfortable mortgage payments. There are still things to consider, however.
The advantages of renting
When you rent, you have much more flexibility and mobility if and when you need to move again, as well as possibly being able to live in an area you can’t afford to buy in. A rental agreement is also much easier to arrange and carries much less risk than a mortgage agreement. You also don’t have to worry about maintenance and repairs.
The disadvantages of renting
On the flip side, you’re paying off someone else’s mortgage and you’re never more than two months away from having to find somewhere new. It’s also unlikely that you’ll be able to make any changes or decorate to your tastes and your rent could increase with each tenancy renewal.
The advantages of buying
Buying a property is a serious investment for the future, with good capital growth over the long term. It’s also your property, so you can decorate it how you want. For many, the security and the fact that the mortgage is probably cheaper than rent is a big draw.
The disadvantages of buying
It costs a lot to buy a home – not just the purchase price – and if interest rates go up, your monthly repayments will follow suit. Owning a home is also more complicated when it comes to moving, especially if there’s a divorce involved, as it can take time to sell and divide the proceeds fairly. You also have to pay for almost all of the maintenance and improvements.
People just starting out in life often find it cheaper and easier to rent because there’s no huge deposit to scrape together and tenancy financial checks are less stringent than mortgage lender checks.
However, homeowners in London can be up to £4,000 a year better off than renters due to relatively low interest rates and high rental rates. In the long-term, if you’re planning to stay put, buying is better.
More about those deposits
Research by the Halifax found that the average first-time buyer deposit in the UK in 2021 was £58,986, with this figure rising to £111,321 in London. This is out of reach for many. There are government schemes to help first-timers out with deposits, such as the Help to Buy scheme and Shared Ownership schemes, but not everyone will fit the criteria for these.
Questions to ask yourself before buying
Buying a property is probably the biggest financial commitment you’ll make, so think carefully and ask yourself these questions.
Are you planning to move again and when?
Moving house is expensive, with stamp duty, estate agent fees, removals expenses and so on. If you think you’ll be moving again within five years, then renting might be cheaper for now.
How important is security?
Do you need to put down roots, or do you need more mobility? If you’re likely to be moving around with your career or relationship, then renting may be best. On the other hand, if you’re starting a family, long-term stability may be more important.
Are you set to receive an inheritance?
Sad as it is, the passing of loved ones may mean you get an inheritance which could form a deposit in later life, or pay down an existing large mortgage.
If you’re unlikely to receive a substantial inheritance any time soon – or ever – then you should accelerate your plans to buy so that you’re building up equity sooner rather than later.
Can you afford the maintenance costs?
Your mortgage payment might be cheaper than your rent, but when your boiler fails in January, there’s no landlord to send a guy (or gal) around. Similarly, you have to fix your own roof and mend your garden fence.
Questions to ask yourself before renting
How soon are you likely to move in the next few years?
If you’re likely to be moving within five years, then renting is a better option because it makes moving cheaper and easier. You have no property to sell and if you find a rolling six-month tenancy then you’re fairly flexible.
Is the look of a property important to you?
If putting your stamp on your home isn’t that big a deal, then renting could work well for you for now. If you’re eager to start your own vegetable garden and raise backyard chickens, however, then you need either an understanding landlord or your own place.
What’s your financial risk appetite?
Home ownership is a big responsibility and as your home loan is secured against…your home, if you run into financial problems you could lose it. This, combined with being responsible for the boiler, the roof, the Japanese knot weed and so on, might be too much of a tall order for you just yet.