Is it Better to Buy or Rent a Home?

white house

In the UK, the rental and property markets are increasingly difficult to navigate. If you are considering renting or buying a home, you may be confused about which option is best.

Both renting and buying have unique advantages and disadvantages – so you are right to weigh up both options carefully before deciding.

This guide looks at the pros and cons of both renting and buying a property in the UK. Let’s explore this further.

Is it Cheaper to Rent or Buy a House?

The primary consideration for buying vs renting is going to be cost for most people.

Typically, renting a property will be more expensive monthly compared to paying a mortgage each month – although with the latest interest rate rises, this difference in monthly cost is narrowing.

Some landlords own their property outright and can set the rent at their own discretion. Most landlords have a mortgage on the property known as a Buy to Let mortgage. As part of their mortgage agreement, they will have to set the rent at a higher sum than their mortgage payment.

You should also consider social housing if this option is available to you as local authorities provide rentals at a lower cost compared to private landlords. The average social housing monthly rent in the UK is £422, and the average private monthly rental is £868.

Buying a Property Cost

Currently the average monthly mortgage payment in the UK is £723. The recent interest rate rises are beginning to push this average price up and it is expected to reach over the £868 average monthly rental price in the next year.

Alongside the increasing monthly costs associated with buying a property, you have to factor in deposit requirements for a mortgage. Lenders require a minimum deposit of 5% of the purchase price. This requirement may be even higher for new-build properties – which typically require a minimum deposit of 10 or 15% of the purchase price.

Monthly Cost of Rentals and Mortgages

When compared side by side, it is fair to say there is little difference in the monthly cost of renting a property compared to owning a property. In fact, you could find your monthly cost is much lower renting from a local authority or housing association compared to paying a mortgage.

Local authority and housing association properties have a reputation for being sub-standard compared to other properties. So once again, it is a bit more nuanced than just the headline monthly cost.

Advantages of Buying a House

You might be thinking that renting a property is the way to go by now, especially as mortgages are getting more expensive compared to average rental prices.

However, there are a number of advantages to buying a house rather than renting:

  • Each month you are investing in the property and slowly accumulating equity (if inflation occurs)
  • You have a greater level of security – you can’t be evicted by a landlord.
  • You can create a home without worrying about a tenancy agreement and the restrictions they contain.

The biggest advantage to buying a property is you have something to show for the money you are paying each month. With rental payments, that money is a sunk cost – once it leaves your account you don’t see it again.

With a mortgage you are paying part of the money into the equity of the property. At the end of your mortgage term you can sell the property and release that money if the property at least remains at the same value.

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Disadvantages of Buying a House

There are financial drawbacks to owning a house rather than renting aside from the ongoing monthly costs.

If you own a property you will need to pay for any repairs and maintenance. You might need to invest in property improvements such as insulation or triple glazing.

Depending on the property you buy, you may also have other ‘hidden costs’ such as a leaseholder’s fee or chancel repair liability. There are also insurance costs to include such as home insurance or life insurance to cover your mortgage debt.

Advantages of Renting a Home

When you rent a home, you rely on the landlord to repair and maintain the property. Any costs associated with the upkeep of the house are the responsibility of the landlord.

Likewise, any liabilities attached to the property such as a leaseholder’s fee or insurance normally fall with the landlord.

Another advantage to renting a house is convenience if you want to leave or move elsewhere. With a mortgaged property you must arrange the sale of the property and incur fees to sell and move house.

With a rental property you can leave at the end of your fixed term and find another property. The only fees typically incurred for rental nowadays is a deposit.

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Disadvantages of Renting a Home

When you rent a property, you have nothing to show for the monthly rental payment. You are in most cases paying another person’s mortgage.

You are also at the mercy of your landlord when it comes to making the property habitable. Most social housing is maintained to a minimum standard and repairs are carried out at the cheapest cost possible to the provider.

Likewise, landlords are likely to find the cheapest solution to any problem you experience – which may result in a lower quality of living.

If your landlord decides to sell the property, they can serve a section 21 notice to have you evicted. This eviction process takes two months. You may have lived in the property for a number of years and decorated it to a high standard – but once the section 21 notice is served, you are at the mercy of the eviction process.

Key Differences between Renting and Buying a Home

In the current market, the ongoing cost of buying a property is higher than renting when you factor in repairs and other fees.

With that said, what is attractive about buying a property is that you are investing in your future. Your monthly payment is partly going toward the equity in the property.

Rentals are in most cases cheaper and more convenient. The payments you make on rent are sunk costs though (aside from covering the cost of renting each month) and there is no return for the money you pay in rent.

If you are considering buying a property, it is best to speak to a qualified whole of market mortgage broker. Boon Brokers is a UK-based whole of market Mortgage, Insurance and Equity Release broker.

Boon Brokers provides fee FREE advice and can find you the most cost-efficient mortgage to help you onto the property ladder. Call Boon Brokers for expert, tailored advice today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.