It’s a common question for those looking for their first home, is it better to buy or rent? The truth is, there’s not really one answer to this question that will apply to everyone, as it depends on both your financial circumstances and your lifestyle.
We’ll look at buying vs renting a home from every angle, to help you make a more informed decision for your future.
Learn about getting a mortgage as a first-time buyer and how to find the right deal for you
If you’re purely looking at whether buying or renting is the cheapest option, then owning a home is the clear long-term winner in terms of cost, assuming you’re able to afford to buy a property.
It’s important to bear in mind, however, that not everyone is able to afford a new home, especially in the current financial climate. Renting is typically the cheapest option in the short term, especially if you’re unable to save a large sum of money for a mortgage deposit.
When you balance the fact that you’re investing in your future security when you buy a home, and that your monthly repayments will eventually lead to ownership, it’s easy to see why this is a better use of your income, assuming you are able to qualify for a mortgage and are actually ready to put down roots in one place.
With renting, of course, you’re paying someone else’s mortgage instead. Whilst many people will therefore view renting as wasted money, it could be a much more convenient option for those who enjoy moving around frequently. Moving house is a costly process and selling your home to buy another can be costly, so it’s better suited to those looking for permanence.
You might also consider delaying the purchase of a home if you’re likely to inherit one later on. This could save you a huge investment and allow you to retain a home that holds sentimental value. This may also give you an opportunity to invest your money elsewhere, such as into a pension scheme or business opportunities.
Once you’ve got the above decisions out of the way, the immediate costs of renting vs buying are fairly similar. Rent in the UK is still slightly higher, on average, than mortgage repayments for a similar sized home, but you won’t need to pay for repairs or maintenance, which rebalances the costs.
Flexibility - A tenancy can be as short as six months, but it’s also possible have an ongoing contract
Speed of organisation - You can sometimes view and move into a rental property within a few days, whereas the mortgage application process takes weeks or months
Speed of moving - You can move to alternative properties and locations fairly easily and without too much additional expense or any responsibility to sell
No maintenance costs - Although you’ll need to take care of the property, you’re not responsible for repairing or replacing things that have stopped working unless you personally damage them. You also avoid the additional cost of building insurance, which is the responsibility of your landlord
Smaller initial financial outlay - The deposit requirement for a rental property is usually equivalent to around 4-5 weeks rent, which is substantially lower than the minimum deposit requirement on most mortgages, which is likely to be multiple thousands of pounds. There are not usually any additional fees involved, unlike the home buying process, which has legal fees and stamp duty, as well as arrangement fees to pay
Furnished property availability - Some rental properties are available ready furnished, which means you can move into your own place without the huge cost of furnishing it. It can also save even more time and money when you decide to move on, as there will be much less to transport
Lower risk - If you’re unable to afford a rental property there is very little consequence other than having to find a cheaper option. If you become unable to repay your mortgage you have the potential to lose a huge amount of your investment, and end up homeless. You also won’t lose out if property prices fall
Lifestyle upgrade - Most people can afford to pay much more of their income in rent than a mortgage lender will consider against a mortgage, which means that it’s often possible to rent a larger home or in a more expensive area than you’d be able to afford to buy
Initial costs - You’ll usually need the equivalent of two months rent at the start of your tenancy, one for rent in advance and the other for a deposit
Potentially rising costs - Your landlord can choose to increase your rent at the end of each lease, meaning you could be priced out of your home
Repair delays - Although repairs and maintenance will be carried out at no cost to you, this won’t necessarily be on your timeline and you’ll have no control over the contractors or quality of finish
Lack of security - While you will be protected from immediate upheaval by your contract, if your landlord decides to sell the property or rent it to someone else, you’ll usually have only either weeks to vacate
Loss of deposit - If the landlord feels that the property has deteriorated during your tenancy, they can withhold some or all of your security deposit. There are, however, deposit protection schemes in place to help minimise this and keep any reductions fair and just
Lack of investment - You’re not paying towards any sort of end goal like with home ownership, and rent payments will continue indefinitely, even into retirement. You also won’t have a home to leave to relatives when you die
Lack of control over decor - Many landlords have strict rules about making any alterations to the property and those that do allow you to decorate usually require prior authorisation. Any investment you do make in decorating will only benefit the landlord in the long run
Gaining equity towards ownership - After the large initial outlay, mortgage payments are fairly similar to what you would be paying in rent, but will gradually be increasing your equity until you eventually own the property outright
Monthly payments reduce over time - Unlike rent, mortgage payments will gradually reduce over time with the balance, assuming you opt for a capital repayment mortgage and your interest rates don’t rise
Benefit from price increases - Generally speaking, properties increase in value in the long term, so you’ll benefit from holding onto the property until prices increase, meaning you can sell it for more than you bought it for and make a profit
More control - You’re able to do what you want to with the property, whether that’s decorating, making more significant improvements, such as replacing the kitchen or bathroom, or taking in a lodger
Security - Assuming you can keep up with your mortgage payments, nobody can take your property away, so you have a secure home. You also have an asset to pass on when you die
Greater financial responsibility - A mortgage is a huge responsibility and your home could be repossessed if you’re unable to keep up with the repayments. This is likely to involve substantial financial loss
Vulnerable to falling prices - Once you’ve invested in a home, you run the risk of losing out financially if property prices fall, and could be left with a property that’s worth less than when you bought it. If you fall into negative equity as a result of this, you could also be trapped, as you won’t be able to remortgage or sell your way out of it
Large initial outlay - There are lots of costs associated with buying a property, including a range of mortgage fees and the deposit, which is likely to be the largest outlay. It can take years to save a large enough deposit to buy a home, which could delay your wider life plans
Greater upkeep costs - You’ll need to pay for buildings insurance when buying your own home and be responsible for any repair costs if something goes wrong
Slow to move - If you do decide to move elsewhere, it can take a long time to sell your property and once you join a property chain, delays in the moving process are more likely
Rising interest rates - When interest rates rise generally, your mortgage repayments are likely to go up eventually, no matter what type of mortgage you have. Even if you’re on a fixed-rate deal, that deal will end eventually. In some cases, there won’t be remortgages available with interest rates as low as they were when you first took out the mortgage
Furnishing costs - If you’re buying your first home before you’ve lived away from where you grew up, you’ll probably need to consider the costs of furnishing a home. These can be quite high, especially if you’re starting entirely from scratch
Financial unions - If you’re buying the property with someone else such as a friend or partner, separating ownership can be extremely complicated and costly to sort out if that relationship dissolves
Learn about getting a mortgage as a first-time buyer and how to find the right deal for you
It really depends on your circumstances and how much you can afford to save. If you’re already renting another property it can be difficult to set very much aside each month. On the other hand, you might have financial help from your family, which can speed things up.
Our guide to saving a mortgage deposit will give you a good idea of how to calculate how long it will take you to save for a mortgage based on the type of home you’re looking for, and ways in which you can speed up the process.
The best time to think about buying a home is when you’re in a good financial position to afford the costs associated with buying a home and when you’re certain that you’re ready to settle in one place for a long time.
This will vary from person to person depending on your personal circumstances and your priorities. Not everyone may want the permanence of home ownership, so it’s all about what’s right for you.