If you’re thinking about getting your own space, you may be wondering, is it better to rent or buy? It’s an age-old debate and there’s no one size fits all answer. There are lots of benefits and disadvantages to consider for both renting and buying a home. The right option for you will depend on your personal circumstances and financial goals.
For instance, while renting can offer more flexibility, securing a mortgage and keys to your own place can give you more control over your home.
Here, we look at the pros and cons of renting a home versus buying a home to help you decide which is the right option for you.
Should I rent or buy?
Whether it’s better to rent or buy a new home depends on a lot of different factors. For example, your financial circumstances and how long you plan on living in a certain area can all affect which living option is right for you.
If you’re considering whether you should rent or buy your own home, an important first step is to be clear on your current circumstances and long-term financial goals. Your answers will act as a guide that can help you weigh up the benefits and drawbacks of both.
Pros and cons of buying a house
The benefits of buying a home include:
- Long-term investment: Your mortgage payments go towards buying your own property rather than paying a landlord’s mortgage and you may benefit from capital growth if your home increases in value.
- Freedom: You’re free to make changes to the property, for example, decorating or making home improvements.
- Cheaper: Although buying a home has high upfront costs, it can be cheaper than renting in the long term.
- Stability: You’ll only have to move if you decide to, not because a landlord has chosen to sell the property.
- Improve credit score: Repaying your mortgage on time can help to improve your credit score.
The drawbacks of buying a home instead of renting include:
- Negative equity: If house prices fall, negative equity can make it difficult to move or remortgage.
- Upfront costs: The initial costs involved with buying, such as a mortgage deposit and stamp duty, can be significant and may take a while to save for.
- Mortgage repayments: Your mortgage costs may rise in line with interest rates unless you choose a fixed-rate mortgage.
- Debt: Paying a mortgage is a major financial commitment that requires careful thought. Falling into debt and even losing your home are both possibilities if you fail to keep up with your payments.
- Maintenance bills: Covering the cost of putting things right with your home when they go wrong is your responsibility (although home insurance may help).
- Joint mortgage: If you have a joint mortgage, selling a house and sorting the finances can be more problematic than if you’ve been renting if you want to part ways.
- Moving: It usually takes much longer to move than if you rent due to the need to sell and the costs involved.
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Pros and cons of renting
The benefits of renting a home instead of buying include:
- Flexibility: Renting gives you the flexibility to try living in different locations before settling down.
- Speed: Typically renting a property can be arranged more quickly than trying to get a mortgage as a first-time buyer.
- Affordability: Renting may give you the option to live in an area where you can’t afford to buy.
- Less financial risk: You won’t have to worry about fluctuating house prices affecting the property’s value.
- Maintenance: The landlord is responsible for covering most maintenance and repair costs in the property.
Some of the drawbacks of renting to consider include:
- Benefits landlord: Your rent usually goes towards paying off your landlord’s buy-to-let mortgage rather than investing your own property.
- No ownership: You’ll be restricted on what you can do in the property, for example, decorating or making home improvements.
- Rent increases: Your rent could increase at the end of your tenancy, which may make it unaffordable.
- Cost: Rent accounts for around 26% of the average income in England and in some areas, it can be higher, according to the Office for National Statistics. This can make it tricky to save for a mortgage deposit.
Is it cheaper to rent or buy?
Regardless of the wider pros and cons, for many, the decision between when to rent and when to buy will ultimately depend on their finances.
Overall, the upfront costs associated with renting tend to be lower than if you are buying.
With landlords not allowed to charge more than five weeks’ rent for a tenancy deposit (or six weeks’ if the rent is set above £50,000 a year), recent analysis showed that the average deposit paid by tenants amounted to around £1,000.
Agency fees for those tenants are banned in England, Wales and Scotland. Although agencies can’t charge fees in Northern Ireland, you may still be charged fees by a private landlord that doesn’t use an agency.
Compare this with a mortgage deposit put down by first-time buyers of between 10% and 20%, which could easily translate into a cash sum of at least £20,000, and it seems that becoming a tenant is initially more affordable than becoming a homeowner.
As to which is the cheaper of monthly rental costs or mortgage payments, there is no definitive answer and it will require you to do some homework yourself.
Working out how much you can borrow through a mortgage will give you an idea of the payments you’d need to make each month, which you can then compare with typical rental prices where you live. You may also find that for the same monthly outlay you can get a considerably bigger rental home than you can afford to buy.
It is worth keeping in mind, however, that hopefully there’ll come a day when your mortgage is completely paid off, and the monthly payments end; if you rent, there is an open-endedness to the money you’ll need to find to keep a roof over your head.
How to decide whether to rent or buy a house
Buying a home is probably the biggest financial commitment most of us will ever undertake. But, if your finances aren’t quite where they need to be, getting to choose between whether you rent or buy could be taken out of your hands, in the short-term at least.
To try and work out if buying your own home is an option, or whether renting is more suitable, think about the following:
Have you got a deposit?
Raising a deposit large enough to secure a mortgage is one of the biggest challenges most first-time buyers face. It might be possible to get a 100% mortgage, but only a handful of lenders offer them and you’ll need a guarantor to back you up (these are known as guarantor mortgages). Then there are low-deposit mortgages, which require a down payment of just 5%, but working this through on a property that costs £150,000, you’ll still need £7,500 to get started. In addition to this, these low deposit mortgages are also riskier than mortgages with a higher deposit as there is a greater chance of falling into negative equity.
Some parents are able to help their children out with gifted deposits, but if this assistance isn’t forthcoming and you’re struggling to save, deposit requirements can be a significant stumbling block to buying a home.
Can you cover the additional costs of buying?
Besides a deposit, a number of other expenses associated with house purchase will usually need to be met. These can include mortgage fees, stamp duty, legal fees, surveys and costs associated with removals.
Will you be able to get a mortgage?
Mortgage lenders will only grant you a mortgage if you can satisfy their affordability tests. This means demonstrating that your income is sufficient to afford the repayments on a mortgage alongside your other living expenses and obligations such as loan repayments. If you intend to buy with someone else using a joint mortgage, their income can be taken into account too and could allow you to borrow more than if you were buying alone.
Are you intending to stay put or relocate?
If you only plan to live in a certain area or property for a relatively short period, renting may be the better option because of the flexibility that it can afford if you do want or need to move. It also may not be worth paying the various associated home-buying costs for what could turn out to be a brief stay.
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How to save for a deposit while renting
Sometimes renting is unavoidable but that doesn’t mean you’ll never get on to the property ladder. If you’re currently renting with dreams of owning a home one day, it is possible to make it a reality! The following tips could help you save up for a deposit while renting:
- Set a savings goal: Work out exactly how much you need to save for a deposit for your first home. Aim to save at least 5%-20% of the property purchase price. Saving a larger deposit could give you access to more mortgage deals at cheaper rates. Be sure to include savings for other costs of buying a home, such as conveyancing fees and house removals.
- Get budgeting: Whether you love a spreadsheet or using pen and paper, budgeting is vital for helping you track where your money goes and ensure you hit your savings target. Some challenger banks offer budgeting tools. There are also lots of budgeting apps available that can help you manage your spending and savings.
- Reduce your expenses: Rent is likely to be the largest expense in your budget, so finding ways to cut it down can help you save more. You can try lowering your rent by moving into a house share or finding a cheaper place to live. Cutting back on non-essential spending can also help to increase your savings.
- Cut your bills: If you’re in charge of the bills, make sure you’re on the best deals possible. Taking the time to shop around can help you find cheaper deals that could help you save money. Price comparison sites are a great place to start and can help you search through lots of deals quickly to find the best value option.
- Boost your savings: Take advantage of government-backed schemes such as, a Lifetime ISA or a Help to Buy ISA (which is now closed to new applicants) to get a free top up on your savings.
Patience is key when it comes to saving for large expenses like a house deposit, so don’t feel disheartened if it takes a little longer to save. Setting realistic savings targets that you can stick to will ensure that you reach your goal and get the keys to your own home.
What help is available if you want to buy a house?
If the rent or buy question is null and void in your mind, and the property ladder is your only goal, there are various schemes to help you realise your home-buying dreams.
A Lifetime ISA can fast track your progress towards a suitable deposit by adding a 25% bonus to your savings. You’ll need to open one of these tax-free accounts between the ages of 18 and 40, but can then contribute up to £4,000 each year until you’re aged 50.
Right to Buy mortgages
Right to Buy mortgages are designed to help council and housing association tenants buy the property where they currently live at a reduced price. To take advantage, you’ll need to have been a tenant for three years and use the home as your main residence going forward.
Shared Ownership mortgages
Shared Ownership mortgages provide a way to buy a share in a property from a housing association or developer. As you’re only part-buying a home – and part-renting the rest – the deposit needed to get a foothold on the property ladder should be smaller than if you were getting a mortgage for the full value of the home. Scotland, Wales and Northern Ireland have different rules on shared ownership to England.
First Homes scheme
Launched at the end of June 2021, the First Homes scheme aims to help first-time buyers with a household income under £80,000 (£90,000 in Greater London) buy a new home at a minimum 30% discount.
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