Before you leap onto the property ladder, you need to make the ultimate decision – is renting a better option than buying?
Buying your first house seems like a rite of passage for most people – you can’t call yourself a true adult until you've ticked it off the list.
But what if buying a house just isn’t for you? Let’s weigh up the pros and cons to buying and renting.
Owning vs borrowing
Ultimately it boils down to this.
Do you want the house to belong to you, or are you happy with living in a house owned by someone else?
Buying a house means that you can make whatever improvements you like, within reason.
When renting, you often need written permission from the landlord for most things - even for putting up shelves and painting walls.
Also some landlords won’t allow pets or children, so starting a family when renting might be tricky.
However, renting gives you the flexibility to move once your minimum tenancy period expires.
Rent vs mortgage
This is a biggie.
On one hand, a big chunk of your monthly mortgage payments are to cover the interest on the loan itself, which is why it takes years to pay off.
Renting gives you extra flexibility if your circumstances change. If you find yourself with less money, you can move somewhere that offers a lower rent.
You also have a wider range of choices when choosing a place to live. Buying a house in a desirable area might be unaffordable, but renting there might be within your price range.
On the other hand, paying rent every month doesn’t give you anything back for your investment.
This is why renting is often referred to as “dead money”.
Depending on where you want to live, monthly mortgage payments could actually be cheaper than rent costs in the same area.
It’s worth looking at the average costs for both options, just in case.
Investment vs extra cash
If you want decent mortgage rates, chances are you’ll need to put down a deposit.
You’ll need at least five percent of the value of the house. This is if you take advantage of the government’s Help to Buy scheme – more on this later.
If you want lower monthly payments, saving for a larger deposit could be worthwhile.
Renting a house doesn’t have any massive up-front costs, so it’s easier to jump in without needing to save beforehand.
This potentially gives you more cash to play with in the short term.
That £20,000 you were saving for a deposit can instead be spent on holidays or a new car, for example.
But that initial deposit acts as an investment in the house, which could increase in value as time goes on.
Freedom vs responsibility
When you buy a house, you are lord and master of what goes on.
This means that if anything goes wrong – a boiler breaks down or the roof leaks – it’s on you to fix it.
This can come with a hefty price tag.
When you’re renting, it’s your landlord’s legal responsibility to make sure these problems are taken care of.
If you’re not DIY-inclined, or don’t have the money to get a professional to make these kinds of repairs, then being a tenant might be more appealing.
However, in a rented house, you’re also at the mercy of the landlords as legal owners. If they decide to sell the house, then you have to move out.
Six of one vs half a dozen
When it comes down to it, no one can force your hand either way.
There are pros and cons to each decision, and as your situation changes your needs will shift.
Neither option is something to be entered into without thought, so it’s worth your while taking the time to weigh up the benefits of each.
If you’ve decided that renting is a better option for you, then check out our guide to tenants’ insurance.
If you want to go the route of the homeowner, then move on to the next step.
Next – Step 2: What can I afford?