Buy or rent a house? A comparison for first-time buyers

Last updated: April 2024 | 4 min read

Renting vs buying in the UK

In 2022, 65.2% of the UK population owned their own home.

Many see home homeownership as a step towards financial security.

Buying allows you to build equity over time, offers potential for property appreciation, and provides the freedom to personalise your living space. For many, these perks outweigh the responsibilities of maintenance and repairs.

Renting a property has been the choice for 20% of the UK adult population (the remaining 15% of the population live in care or with family).

It can provide flexibility, minimal maintenance responsibilities, and the absence of hefty upfront costs like stamp duty.

With the freedom to move at the end of a tenancy, renters can easily adapt to life changes, be it a new job or family expansion.

For those not ready for the financial and maintenance responsibilities of ownership, renting remains an attractive option.

A financial breakdown

House prices and monthly mortgage payments

Although house prices have fluctuated throughout the past thirty years, influenced by economic conditions and political changes, they have tended to increase as successive governments have tried to make home ownership a key political target.

By the end of 2023, the average property price in the UK stood in the region of £250,000, plus or minus £10,000 for monthly fluctuations.

Getting on the property ladder, for many, means being able to secure a mortgage.

For a first time buyer with a 10% deposit, assuming an interest rate of 6%, the monthly mortgage payment on an average-priced property would be approximately £1,450.

As property prices vary across regions, it's worth noting that homes in the North East generally offer better value than those in London.

Monthly rent compared to landlord's monthly mortgage payment

The average monthly rent in the UK was around £950.

While it may seem like renting is the cheaper option, it's essential to remember that renters are essentially paying their landlord's mortgage. Therefore, the money spent on rent does not contribute to any long-term asset.

It is better to compare an interest-only mortgage to rent, and in this situation, the repayment would be closer to £1,100 if compared to a similar property.

The difference is that many landlords secured mortgages before the recent interest rate hikes, and are paying much less than you might be offered if you were to buy now. Rents tend to lag behind mortgage repayments. For many landlords, rents still cover mortgage repayments only.

In areas like London, the monthly rent can be substantially higher, often making it more difficult for renters to save for a property deposit. The average is £1,615 for a house price of around £525,000.

Mortgage repayments vs rent

For many, the choice between mortgage repayments and paying rent hinges on monthly accommodation costs.

When the average rent creeps close to or even exceeds mortgage repayments, the idea of putting money towards home ownership instead of a landlord's mortgage becomes appealing.

However, monthly repayments can change, especially if homeowners don't secure a fixed-rate mortgage. If interest rates rise, so can the monthly repayment.

Renters, on the other hand, face potential rent increases, usually annually, but have the flexibility to move if costs become prohibitive.

Maintenance expenses

Maintenance costs are often overlooked.

Homeowners are responsible for all repairs, replacements, and renovations. A broken boiler or leaking roof can result in unexpected and costly bills.

Renters, typically, aren't financially responsible for these issues. When a rented home encounters problems, the landlord foots the bill, allowing renters to avoid unexpected maintenance costs.

It's worth considering this aspect when weighing up the financial implications of renting a home or stepping onto the property ladder.

Pros and cons of buying a house

Benefits of owning

Equity and property value: Home ownership means every mortgage payment contributes to owning a greater slice of the property. Over time, as house prices rise, this stake becomes a tangible asset, holding the potential for profit upon selling.

Adding value by extending, reconfiguring, and modernising: Homeowners have the advantage of enhancing their property's value by extending it or renovating it. From kitchen revamps to loft conversions, personal touches not only make a home feel yours but also increase its market value.

However, bear in mind that while as an owner you might want to add an extension or renovate the interior, your plans might still be limited by needing planning permission or observing the neighbour's rights.

Retirement and long-term commitment: With a purchased property, when the mortgage is fully paid off, monthly housing costs dramatically decrease. For many, this comes at retirement, reducing financial stress during years when steady income might lessen.

Personalising your home and garden: Owning a home paves the way for personalisation. From garden landscapes to vibrant wall colours, homeowners can craft spaces without seeking anyone's permission. It's a canvas to express and mould.

Drawbacks of owning

Upfront and mortgage fees: Entering the property market often involves steep upfront costs. From the mortgage deposit to estate agent and legal fees to stamp duty (even for first-time buyers), purchasing a home requires significant savings.

Risks with falling property value: Although historically house prices trend upwards, negative equity remains a concern. If property prices fall, homeowners may find themselves owing more on their mortgage than the house's worth.

Maintenance responsibility: Homes age, and with time come unexpected repairs. Owners bear the weight of these costs, from replacing a worn roof to fixing a faulty boiler. Unlike renting, there’s no landlord to foot these bills.

Pros and cons of renting a house

Benefits of renting

Moving flexibility: Renting offers unmatched flexibility. Whether a job relocation beckons or the city's hustle and bustle becomes too much, tenants can shift with fewer strings attached. Lease renewals aren’t lifelong commitments.

No responsibility for costly repairs: What if heating fails in winter? What if there's a leaky roof? Well, tenants can contact their landlord. Maintenance and repair responsibilities, often expensive, rest on the landlord's shoulders, providing renters some peace of mind.

Potential for cheaper living: Depending on location and personal circumstances, renting can be wallet-friendly. In some areas, rent payments can be significantly lower than the monthly mortgage, freeing up money for other pursuits.

Drawbacks of renting

No long-term financial growth: Renting lacks the long-term financial benefits that come with buying. Monthly rent goes into the landlord's pocket, not building equity or an investment for the future.

Perceived lower social status: Some people view home ownership as a status symbol, a mark of financial stability. Renters might sometimes feel societal pressures or misconceptions about their financial acumen.

Pet and renovation restrictions: Desire a fluffy feline friend? Do you want a bold blue bedroom? Landlords might say no (although this is likely to change shortly with new reforms coming in). Rental properties often come with restrictions, from pet policies to decor changes, limiting personalisation.

Rent volatility and less stability: Monthly rent isn’t as stable as a mortgage amount. Landlords can hike prices or decide not to renew leases. Such uncertainties make planning future finances and settling down more challenging.

What are the key considerations when deciding to buy or rent

Assessing disposable income

In 2023, a study revealed that homeowners spent 35% of their disposable income on monthly mortgage payments, while renters allocated 31% to paying rent.

Assessing how much disposable income is left after paying monthly expenses can provide clarity on the financial feasibility of either buying or renting a property.

Evaluating deposit and mortgage fees

With house prices on the rise in England, Scotland, Wales, and Northern Ireland, saving for a small deposit is no easy feat.

On top of that, future buyers should be aware of additional costs, such as survey fees and lenders' setup charges.

These upfront expenses can be a hefty sum, making the initial phase of buying a house more costly compared to the deposit needed for rent, which is usually capped at five weeks' rent.

We have a longer article on costs when purchasing.

Projected living duration in next home

Research suggests that staying in a property for a minimum of five years could offset the high initial costs of buying.

If a short stay is anticipated, perhaps due to job demands or a change in relationship status, renting might be a more flexible option.

Effects of rising interest rates

The Bank of England's decisions on interest rates directly affect monthly mortgages. A rise in rates could increase your monthly payments, while a drop could reduce them.

Renters, on the other hand, may see changes in their monthly costs depending on market demand, though not necessarily linked to national interest rates.

Personal factors: family, job, lifestyle

Your lifestyle plays a significant role in the rent or buy decision.

Growing families might yearn for their own place to redecorate, extend, or plant a garden.

Job changes or a desire for a new home could influence others.

Each person's circumstances change, and what feels right today might differ tomorrow.

Also consider

Is renting a waste of money?

Contrary to popular belief, renting a home isn't pouring money down the drain.

Monthly rent payments provide shelter, renting flexibility, and avoid the need for a large deposit or mortgage commitment.

Rental costs, however, contribute to paying your landlord's mortgage, rather than building personal equity.

Starting the moving process

Moving house stirs up emotions, paperwork, and costs.

If you are considering buying, the first step is finding out about the various types of mortgages available and researching mortgage deals to see what you can afford.

Renting, on the other hand, requires evaluating rental property in your budget range and preparing a month's rent in advance plus potential deposits.

Choosing the best mortgage deal

The mortgage market offers a vast array of deals, each with its terms, interest rates, and fees.

Monthly mortgage varies significantly between lenders, so it's beneficial to shop around.

Online mortgage calculators and comparison sites, such as the UK government's Money Advice Service, can give an initial idea.

Still, it's often beneficial to speak to a mortgage adviser to find the best fit for your financial situation.

Stamp duty and buying costs

Buying a house in England involves not only the price of the property but also additional costs, for example, stamp duty.

Stamp duty is a government tax on property purchases, and the amount varies depending on the price.

How to decide

The ultimate decision to rent or buy boils down to individual circumstances. Reflect on your employment stability, whether you're planning to live in an area short term or long term, and if your circumstances might change suddenly (like a new job or starting a family). Consider if you'd be comfortable with a long-term commitment, such as a mortgage.

You can learn more about buying and renting by looking at the government's website about housing and local services.

Ponder over what you value more: the flexibility and short-term commitment of renting or the long-term financial benefits and responsibilities of buying. Weigh the monthly payments of renting against monthly mortgage payments. Understand that while monthly payments might feel like an ongoing cost with renting, they might lead to property ownership with buying. Also, consider the potential of property rises in your desired location.

Lastly, think about lifestyle preferences. Some people relish the idea of decorating and personalising their space, while others prefer not to be involved in property upkeep. By reflecting on these factors and consulting professionals when needed, you'll be well-positioned to make an informed decision best suited to your needs.

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