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Is it Better to Rent or Buy a House?
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 different factors before making a commitment.
Buying a home comes with many upfront costs whilst renting offers more flexibility should you wish to move. It’s important to research both options to ensure you make an informed decision. In this guide, Compare My Move looks at the benefits and downsides of both owning and renting a house.
Covid-19 and Buying a House
The global pandemic and lockdown in March 2020 have affected the process of both buying and selling property, ultimately slowing the rate of communication throughout the chain. Many residential sales now include a ‘Covid Clause’ within the contract, covering all parties involved from any potential delays due to a ‘Coronavirus Event’. If you decide to buy a house throughout the pandemic, expect delays and a longer amount of time between the exchange of contracts and completion.
Many sales, purchases and house moves were put on hold throughout 2020 affecting the housing market across the UK. This ultimately meant that house prices have fluctuated throughout the pandemic. It has also resulted in many lenders altering or reducing their mortgage products in light of the economic downturn. Before committing to a house purchase, it’s advised you speak to a mortgage broker, as well as other professionals, to discuss what is available to you.
Before organising your house move, don’t forget to check your local restrictions and any recent government announcements to ensure you adhere to any and all Covid-19 regulations.
Renting vs Buying
Your decision to rent or buy a house entirely depends on your personal preferences and circumstances. It’s important to look at your own situation and consider factors such as your income, current relationship status, long-term plans, the current housing market and the area you’d prefer to live in. However, there are also a variety of steps within each process, ones that could potentially sway your mind and confirm your choice.
One factor that greatly affects the decision of many potential buyers, is the cost of purchasing a home. Before deciding whether to rent or buy, you need to assess your own financial situation and consider the monthly and upfront costs that would come with each process. Whilst buying a home means an upfront deposit of around 10% as well as conveyancing costs, renting can sometimes be more expensive in the long run due to rent.
Some mortgage rates may mean it’s cheaper to buy a house overall and so it’s important to seek the advice of a professional mortgage broker to help you find out what’s available to you. It’s vital you work out a personal budget before making a decision as buying a home is often a long-term investment.
However, renting typically offers a more flexible living arrangement for those looking to move again within a few years. It is a much smaller commitment compared to buying a house, but as the landlord will be the legal owner, you also need to consider that you will likely have much less freedom when it comes to making the house a home.
Benefits of Owning a Home
There are many advantages to buying a house compared to renting one. 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 could increase your rent. You won’t get the same financial security with renting as the UK government states 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 actually be cheaper, if not the same. 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 show. 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 via 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. If you do decide to renovate, however, don't forget to research if you need a party wall agreement as this can be an expensive added cost.
Downsides of Owning a Home
Buying a house comes with its downsides, too. Owning a home has more upfront costs and the legal process 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% deposits but most require 10%, with the lowest interest rates applying to mortgages where 20% deposits have been paid. There are a number of government-run schemes that can help you save for a deposit, but you do have to be eligible and follow certain criteria.
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, 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 then finally 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. 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 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 it’s the easier option for some people, renting a house also comes with its disadvantages. You need to factor in everything to ensure you make an informed decision.
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 carry out an affordability check and look at your income, your outgoings, the size of your deposit and other factors, such as debt, that could affect how you pay back the mortgage.
The loan-to-value (LTV) is how much of the property’s value you can borrow - it is capped at 4.5 times your salary. For example, if you have a 10% deposit and need to borrow 90% of the property’s value as a mortgage, your LTV will be 90%. Typically, the lower the LTV, the cheaper your monthly mortgage payments become.
You’ll normally need a 5% deposit at least to buy a property (e.g. 95% LTV). You’ll get a much wider choice of deals if you can save 10% (90% LTV), and even more choice if you can save more. The bigger deposit you can save, the lower your interest rate will be.
It's essential that you’re sure you can afford to pay your monthly mortgage payments along with other regular bills such as utilities and council tax, even if you are accepted for a mortgage. You may find it beneficial to discuss your options with a mortgage adviser before deciding whether to continue purchasing a house. Do your research to see if you can afford to get a mortgage and how much a lender can loan you before you apply.
Mortgage Vs Rent
Getting a mortgage and buying a house comes with more upfront costs than renting. Although buying a house is expensive, you will own the house once you’ve paid your mortgage, which isn’t the case when 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 as well as renting a house to give you an idea of what to expect.
Cost of Buying a House
There are a number of services to consider when buying a house. From the mortgage fees to the removal company, there are generally more factors and costs involved when buying property compared renting.
To help you plan a more precise budget, the average cost of buying a 3-bedroom house at the current UK average of £237,834 is currently £25,569.
Below, we’ve included a table depicting some of the average costs to expect when buying a home:
| Average Cost | |
|---|---|
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) |
*Mortgage costs taken from Money Advice Service. Other costs are taken from Compare My Move’s articles and data.
Cost of Renting a House
As you will have to pay your rent monthly, there are fewer upfront costs involved when renting a home compared to buying one. Below, we’ve included just some of the costs to expect when renting a property:
| Average Cost | |
|---|---|
Holding Deposit | Usually 1 weeks’ rent |
Tenancy Deposit | £200-£500 |
First Months Rent | N/A |
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 property. 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 local 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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If you’re choosing to buy a house, we will help you the whole way. Compare surveyors, conveyancers and removal companies with us, and save time, money and effort.
