Rent or Buy a Home - Which is the Best Option For You?
Deciding if buying or renting a house is better for you will depend on your financial situation and personal preference. There are advantages and disadvantages to both buying and renting a home, so it’s important you weigh up the pros and cons before making a commitment.
In this guide, Compare My Move looks at the benefits and downsides of both owning and renting a house.
Benefits of Owning a Home
There are many advantages to buying a house instead of renting. Other than having your own private space, owning a home comes with many financial benefits, too. We’ve weighed up the advantages of buying a home to help you decide.
1. Consistent monthly repayments
A fixed-rate mortgage is a type of mortgage that allows you to pay the same amount each month for a fixed-term. With a fixed-term mortgage, you don’t have to worry that your landlord might increase your rent. You won’t get the same financial security with renting as the UK government state that landlords are allowed to increase your rent at least once a year.
2. You pay towards owning your home
Many people think renting is the cheaper option. Whilst rent may be cheaper in some cases, more often than not, your monthly mortgage repayments will be cheaper, if not the same as monthly rent. The upside of paying a mortgage instead of paying rent is that the money goes straight towards owning the home and not to a landlord.
3. Property is likely to increase in value
Buying a house is a great investment. Although property prices cannot be guaranteed to rise, especially over short periods, in the long term, property values will rise. Over the last year, property prices in the UK have risen by 2.2%, data from the Land Registry shows. Once you have paid off your mortgage, your home will most likely be the most expensive thing you own. Unlocking some of your house’s value (equity release) will help in retirement, too.
4. Freedom to renovate
You will have full freedom to renovate your home once you own it. By adding an extension or a loft conversion, you have the potential to even add value to your home. With renting a home, you will be very limited with what you can decorate.
Downsides of Owning a Home
Buying a house comes with its downsides, too. Owning a home has more upfront costs and takes time. We’ve listed some of the disadvantages of being a homeowner.
1. You must find a deposit
For most people finding enough money for a house deposit can be tough. A few mortgages exist that require 0% deposit but most require 10%, with the lowest interest rates applying to mortgages where 20% deposits have been paid.
2. Buying a home is expensive
Whilst a mortgage will work out cheaper in the long run as you will own your home, buying a house is an expensive process. Additional costs include mortgage fees, surveying costs, conveyancing costs and removal company costs. Data from MFS shows that 39% of UK homeowners had to pay third-party fees even if the purchase fell through.
3. Uncertainty of the property market
When it comes to selling your home, there is a potential it could lose value due to the unreliability of the UK property market. It’s hard to gauge what the property market will be like in a few years time, so it could be difficult to sell your home when the time comes.
4. Rising interest rates
If you have a variable mortgage, your monthly mortgage repayments won’t be consistent if the interest rate changes. Each month your mortgage repayments will increase or decrease in line with the Bank of England interest rates. Although you can choose a fixed-rate mortgage which typically lasts between 2-5 years.
5. Less freedom if you want to move
If circumstances were to change in your life, such as a new job or travel opportunity, it will be harder to sell your house and move out. You can give short notice when renting if you want to leave, with owning a home it could take months to sell your house, find an area to live and move house.
Benefits of Renting
Renting a house can be a better option for some people. The opportunity to move without the hassle of selling a house will work in favour of those travelling around for work.
1. Fewer upfront costs
When you rent a house, there will be fewer upfront costs than if you were buying a house. Usually, landlords will ask for one month’s rent in advance before you move in. Sometimes landlords will include the cost of utility bills in the price of your rent, but you should query this beforehand.
2. Tenant Fees Act
The Tenant Fees Act was introduced in June 2019 and put a ban on some fees charged by letting agents and landlords to tenants before they begin their rental contract. This ban on tenant fees has made the renting process significantly cheaper for many people as it diminishes the upfront costs.
3. No maintenance costs
When you encounter maintenance problems, such as a broken boiler or fridge, your landlord or letting agent if there is one, will fix will fix these issues as part of your rental contract. This will save you time and money as you won’t have to contact a tradesperson or pay for the repairs.
4. Short-term commitment
You will have more freedom to move around regularly if you rent than if you were tied into a mortgage plan. If your five-year plan isn’t set in stone or you are living and working in between different areas, then renting would be the better option.
Downsides of Renting
Whilst renting is the easier option for some people, renting a house comes with its disadvantages, too.
1. Paying a landlord and not towards a home
The main downside of paying rent is that the money goes in the pocket of the landlord and not towards owning your own home. Often monthly rent is similar to the cost of monthly mortgage repayments.
2. Unpredictable rent costs
Landlords have the right to increase their rent at least once a year, so you don’t have that peace of mind that you get with a fixed-rate mortgage. Buying a house has more upfront costs, but the monthly mortgage payments are more consistent than rental prices.
3. Banning tenant fees
Whilst the ban of tenant fees sounds like a positive change, a study by MSF found that two-fifths (44%) of landlords they surveyed are against the Tenant Fees Act. With landlords frustrated by a tenant fee ban, they are more likely to put up their rent in line with the ban.
4. Lack of personalised space
You will have limited freedom in decorating your rented house or flat. Landlords rarely allow you to personalise your space, especially if the contract is short-term. They will likely offer more freedom if you plan on renting their house long-term.
5. No guaranteed length of tenancy
If a landlord wants to sell the property, or move into it themselves then you may have to leave; this can make it difficult for renters to plan ahead.
How Much Mortgage Can I Afford?
The amount you can borrow from a mortgage lender will depend on various factors. A mortgage lender will look at your income, your outgoings, the size of your deposit and other factors that could affect how you pay back the mortgage such as debt. Do your research to see if you can afford to get a mortgage and how much a lender can loan you before you apply.
Is Getting a Mortgage Cheaper than Renting?
Getting a mortgage and buying a house comes with more upfront costs than renting a house. Although buying a house is expensive, you will own the house once you’ve paid your mortgage, unlike with renting.
It should be noted that whilst there are more upfront costs when buying a house, 49% of renters saw an increase in rent in 2019 due to the ban of tenant fees, a study by the estate and lettings agents’ trade bodies, NAEA Propertymark and ARLA Propertymark discovered.
Below are the average costs of buying a house as well as renting a house to give you an idea of what to expect:
Cost of Buying a House
- Mortgage Arrangement Fee - £1,000-£2,000
- Mortgage Booking Fee - £100-£250
- Mortgage Valuation Fee - £150-£1,500 (can be free, depending on your mortgage lender)
- Deposit - Usually 10% of the property price
- Conveyancing Costs - £1,040 (average UK house)
- Surveying Costs - £350 to £2,500
- Removal Company Costs - £1,181 (3-bedroom house)
Cost of Renting a House
- Holding Deposit - Usually 1 weeks’ rent
- Tenancy Deposit - £200-£500
- First Months Rent - N/A
* Mortgage costs taken from Money Advice Service. Other costs are taken from Compare My Move’s articles and data.
Government Help to Buy schemes
If you want to buy a house, but you will struggle with saving for a deposit or paying the mortgage, you should look at using a government scheme to help. Government schemes include:
Lifetime ISA (LISA) - The Lifetime ISA allows you to save for your first home or to save towards your pension. The government will offer a 25% bonus each year and you can save up to £4,000 a year.
Help to Buy: Shared Ownership - The Help to Buy: Shared Ownership scheme allows you to own a share of your home whilst paying rent on the rest. You will get the opportunity to buy a bigger share later down the line. It must not be confused with the Help to Buy Shared Equity scheme. If you would like to learn more about shared ownership vs shared equity, we have a useful article describing the difference between both schemes.
Help to Buy ISA - The Help to Buy ISA has now closed. If you opened a Help to Buy ISA, you can save up to £200 a month and the government will boost your savings by 25%. The money saved will help towards a house deposit.
Buying a House and Brexit
The uncertainty of Brexit means many people are unclear on when to buy a house. You should never rush into buying a house. You should buy a house when you’re confident and comfortable that you can afford it and when the property market is looking good in your area.
Land Registry data shows that the average UK house price has increased by 10% since the referendum in June 2016. A survey by Online Mortgage Advisor revealed that 46% of people would feel nervous to buy a new house in the run up to a confirmed no-deal brexit date.
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