Everyone has a different opinion on whether to rent or buy. The decision is not an easy one, and it will be different for everyone depending on their financial situation, the market conditions of their desired location, and other factors.
However, some important considerations should be considered when deciding to rent or buy. This includes upfront costs, monthly payments, freedom and flexibility.
This blog post from Moving Sorted will explore these factors in-depth, so you can make your own informed decision about what option is best for you.
Renting versus buying: Which is cheaper?
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Monthly payments
The average monthly rent payment sits around £ 1069 per month in the UK. At the same time, average monthly mortgage payments are £750.
At first glance, it would appear that paying the additional costs of purchasing a house is worth the long term investment for cheaper monthly repayments.
Whilst these figures are representative of the current cost of housing; there are variations depending on your property size and condition, as well as location. When renting, you may be able to afford lower payments on a property that is worth 9 or 10 times your yearly income. However, when purchasing, mortgage lenders often only approve loan amounts around 3.5x your income. This may mean you have a higher upfront cost as you require a big deposit, or depending on how much disposable income you have, you might have to compromise on your ideal property.
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Upfront costs
Renting a home is typical only subject to one upfront cost: your deposit. This amount is limited to 5 weeks of the yearly rent total in the UK. On average, deposits in England and Wales are around £1110.
Buying a house is associated with several costs, which tend to be much higher than moving into a rental. The down payment on many properties in the UK tends to be between 10-40% of the property price, depending on the type of mortgage deal that you acquire. You’ll have to independently save for your house deposit, which often equates to tens of thousands of pounds.
In addition to your deposit, you’ll also need an additional supply of several thousands of pounds to account for the accompanying costs of purchasing a house. This will include conveyancing fees, stamp duty and extra moving costs.
Advantages of Buying
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Freedom of owning your home
One of the biggest draws for so many homeowners and potential buyers is the freedom of owning a property. Within your home, you can establish the rules or lack of. You won’t have any governing body, such as a landlord, to tell you what you can and cannot do within the property.
Many homeowners enjoy the possibility of refurbishing and decorating their homes without needing permission. You’ll also decide whether you want pets on the property, how many guests are in your home and who can stay over. While these seem like obvious decisions for homeowners, they are luxuries that strict landlords often deny permission.
Alongside the freedom and responsibility that accompanies the purchase of your own home, there is also a sense of wellbeing. One survey indicated that 91% of homeowners experience a satisfying feeling of well-being associated with their homes. Compared to 79% of renters, it is clear that owning a home offers feelings of comfort and freedom.
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Save money
Whilst the initial upfront costs of purchasing a home may be high, the benefit of investing your money far outweighs any initial savings made by renting a home.
Your monthly mortgage payments are to repay a debt to the mortgage lenders. Once this amount is repaid, you own a property that may increase value over time. Property investment can act as a long-term savings solution. Alternatively, paying rent only puts money into your landlord’s pocket.
The financial stability associated with paying off your mortgage cannot be reached by paying rent for the rest of your life.
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Make money
The housing market within the UK is constantly fluctuating. Changes in property supply and demand increase or reduce property values continuously. Making a long-term investment in a property whilst house prices are low could generate a generous return on investment when it comes to selling a few years in the future.
There are also various other ways to generate cash from property investment. By refurbishing or upgrading particular aspects of your home, you might find success selling the house at a much higher price than you bought it for. Alternatively, if you plan on travelling or living elsewhere temporarily, you could rent your home to tenants. The monthly rent can be paid towards your mortgage repayments, cancelling your monthly costs and potentially generating a profit.
Disadvantages of Buying
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Large financial commitment
Purchasing a property tends to have much more responsibility associated with the financial circumstances of your loan. If you fail to make regular mortgage payments, various risks are involved for your financial health.
If you lose your job or interest rates rise and can’t afford monthly mortgage payments, the bank may repossess your home. Furthermore, if you can’t pay your debts and the amount owed totals more than the value of your property, you could face bankruptcy. Future mortgage lenders and even landlords will become cautious of your financial circumstances.
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Responsibility for repairs
As a homeowner, you become solely responsible for the maintenance and upkeep of your property. However, many tenants often enjoy the luxury of calling their landlord whenever anything goes wrong.
Unfortunately, once you have purchased your home, it is your job to arrange for repairs and shoulder the costs.
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Less flexibility to move on
Purchasing a property is a huge commitment. With many mortgage terms lasting more than 25 years, you’ll want to choose a property that you’re happy to stick with for a few years.
Changes to your lifestyle or plans can be challenging when committed to monthly mortgage repayments. Unlike ending a tenancy agreement, selling your home takes far more hassle and costs much more.
Advantages of Renting
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Flexibility
If your needs or lifestyle change, renting offers the ability to move to a different place without selling your home quickly. Or, if you need to move for work.
You can also usually rent for a shorter period than you would need to buy, which makes it an excellent option for people who aren’t sure about where they want to live for the long term.
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Faster and cheaper moving process
The process of moving home is generally considered much more efficient when renting. You don’t have to wait for the completion of the conveyancing process or for legal complications to be solved.
You don’t have to deal with any of the headaches associated with buying a house. Instead, you can choose a home, pack up your things and feel free to move onto the next property without too many complications.
Your only costs are usually moving expenses and any deductions from your deposit. You won’t be spending thousands of pounds on solicitors’ fees or legal expenses.
Disadvantages of Renting
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Lack of control
When renting a home, you don’t have as much control over the property as you would if you were buying it. For example, you may not be able to paint the walls or have pets without the landlord’s permission.
This can be frustrating if you don’t get along with your landlord or they inflict strict rules and restrictions. You’ll also be at their whim during their decision making. If they decide to increase the rent amount or sell the property, you may be forced to pay more or move out of the property without a word on the subject.
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No future investment
You may be paying more or less than you typically would on a mortgage when renting a property. Unlike when you purchase a house, the money spent on rent won’t come back in the future.
The only money you’ll receive back at the end of your tenancy agreement is the deposit paid at the start. When you own a house, you’ll receive the total amount invested into the property in return when it’s sold. Renting doesn’t provide any opportunity to accumulate your wealth or grow value within the property for your benefit.
Considerations when deciding whether to rent or buy?
Do I earn enough to afford a mortgage?
Before even thinking about buying a house, you’ll need to obtain a mortgage in principle. This indicates the hypothetical amount of money your lender would be willing to pay for a property based on your current earnings, credit score and money management circumstances. A mortgage in principle doesn’t mean your application will be approved, but it gives you an indication of the amount you can borrow.
Speaking with a mortgage broker is also beneficial before buying a house. They will advise you on available mortgage deals that you can currently afford. This will help you determine whether you can afford to buy a home.
How much do I need for a deposit?
There is a range of mortgage deals available from different lenders throughout the UK. With mortgages ranging from 95-60% loan to value, you could benefit from contracts that allow for various deposits.
Mortgages with lower loan to value ratios are subject to far lower interest rates due to the reduction in the amount borrowed. You could save thousands of pounds in interest repayment if you can afford this.
Considering the average price of a property in the UK is around £270,000, the amount needed for a 20% deposit would be £54,000. It is worth assessing your current disposable income before deciding on mortgage deals.
Final Thoughts
There is no perfect answer to the debate between renting and buying. Circumstances, financial situations and preferences will vary between each individual.
When deciding whether to rent or buy your next home, consider your core priorities. Do you want flexibility or control to determine how you use your home? Are you happy to abide by your landlord’s rules to benefit from lower upfront costs and property management services?
Buying a home is a significant investment, but it does offer generous returns if your property gains value over time. Consider whether you would prefer to save your money or pay into your landlord’s pocket each month. After making up your mind, ensure you can afford the rent or mortgage for the type of property you desire. This will help to secure the decision for your next home.
If you decide to purchase your next home and require the services of an accredited conveyancing solicitor, contact Moving Sorted for professional, hassle-free property transactions.
