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Should I rent or buy?

It’s the age old question: Should you buy a property or are you better off renting?

Home mover emptying boxes

Unfortunately, there’s no easy answer. What’s right for one person, won’t be for another.

A variety of factors must go into your decision.

You need to consider your long-term goals, your finances, the availability of properties, and the outlook for the housing market.


Owning v Borrowing

It all comes down to this: Do you want your own place – or are you happy living in a house owned by someone else?

There are pros and cons with each approach. Let’s look at each in turn.


Benefits of owning a house

It’s yours! As long as you keep up with your mortgage repayments you won’t be asked to leave.

It’s your home for as long as you like. This gives you long-term stability.

Renting means you’re pretty much at the mercy of landlords.

Okay, there are rules governing how you can be treated, but you can still find yourself out of a home.

Your landlord may decide not to renew the lease – even if you’re a model tenant. For example, they may want to move in themselves, especially if they’ve been living away.

Or they may be an ‘accidental landlord’ – someone who may have inherited the property and only renting it out until they find a buyer.

Don’t forget there’s always the chance of your property increasing in value.

You can use the equity – its market value less the mortgage debt – to help buy a bigger home.

Alternatively, you may opt to sell the house buy somewhere smaller and cheaper.

This could end up netting you a tidy windfall.

There’s also the potential to make capital gains over time.

The average house has soared in price over the last few decades, according to data from the Office for National Statistics.

Back in 1986, the average dwelling was a modest £36,000. A decade later it had shot up to £71,000 and by 2000 it broke through the £100,000 barrier.

Within six years it had doubled to £205,000, while the average price in 2020 stood at an eye-watering £303,000.

Owning the property means you answer to no-one but yourself!

If you want to do some DIY and paint the lounge purple with green dots then you can go for it.

It’s also easier to make improvements and changes as you don’t need to ask the landlord’s permission.

However, you may still need planning permission.

And always check with your insurer before embarking on home improvements - you don't want to invalidate your home insurance

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What you need to buy a home

Buying a house is a long-term investment so you need to do your research.

Mortgage repayment terms tend to run for 20 to 25 years so you need to consider if you’re in it for the long haul.

You’ll need some money behind you.

Generally, you’ll need enough to put down a 5% deposit on the property. If it’s worth £200,000, this’ll be £10,000.

If you can pay more upfront then your so-called loan to value ratio is lower.

As you’re deemed less of a risk, mortgage companies may charge you a lower rate of interest.

It’s definitely worth looking at your finances to see how much you can realistically save for a deposit.

There are also other costs.

Conveyancing duties are likely to set you back several thousand pounds and you may also have to pay stamp duty.

This is a fee based on the percentage of the property’s sale price.


Is it cheaper to buy or rent?

This isn’t a straightforward question either.

It all depends on what you’re buying – or renting – and where it is in the country.

For example, your rent might be lower than your repayment mortgage costs.

Conversely, they may be considerably more expensive if you have an interest-only mortgage deal.


Cost of renting

The median monthly rent for England stood at £730 between April 2020 and March 2021, according to the Office for National Statistics. This is the highest level ever recorded! 

Of course, rents vary across the country.

Unsurprisingly, London had the highest median monthly rent at £1,430 – nearly double the national average.

For Inner London, the highest median monthly rent was an incredible £2,275 in Kensington and Chelsea.

The lowest was in the Northeast, which was a relatively modest £500.

The difference between the most expensive local authorities and the least was almost £2,000.


How times have changed

Renting was the norm for most households in 1961, according to figures from the Office for National Statistics.

In fact, only 42% of households owned their own home.

In some parts of central London, home ownership was lower than 10%.

By the time of the 2011 Census, home ownership had risen to 64%.

The lowest home ownership was still in London, with the area equivalent to the 1961 metropolitan borough of Shoreditch bottom of the pile at 16%.

The landlords also changed.

In 1961, 28% of households were private rented accommodation, and 24% of households rented from a local authority or New Town corporation.

The “Right to Buy” schemes, introduced in 1980, allowed council tenants to buy the home they rented.

Some council housing was replaced by properties owned by private landlords.

By 2011, only 9% of homes were rented from a local authority and 15% of homes were in private rented accommodation, according to the figures.


Benefits of renting

Flexibility is the key benefit. This is particularly attractive if your circumstances are likely to change or there is uncertainty surrounding job prospects.

Most agreements are for six or 12 months so as long as you pay your deposit and keep up with the rent then you have a roof over your head.

Renting means you don’t have to raise thousands of pounds for a deposit or pay the numerous fees associated with house purchases.

If you don’t like the property – or the area – then you can give notice and find somewhere else.

It’s stress-free to relocate, for example, should you need to move near the best schools.

The other main benefit is you don’t need to worry about expensive repair bills.

If the boiler breaks down, there’s a leak in the roof or the tap keeps dripping, you just contact the landlord.


How to decide whether to rent or buy

Here are four things to consider in order to make your decision.

Future plans

Are you planning to be in this house for a long time or will moving jobs or having a family require upping sticks in the near term?

Can you afford your perfect house in the right area or is it purely a stop gap measure?

If it’s the latter then renting may be preferable.


Your personal finances

Have you enough for a deposit? What would your monthly repayments be if you did decide to get a mortgage – and could you afford that without a struggle? No-one can guarantee what’ll happen in the future but consider whether your job seems secure.


Costs of renting in your area

Compare the costs of what your mortgage repayments would be with rent for similar properties in your local area.

There could be a major difference.


Have you got longer-term savings?

If you opt to rent have you got a plan for how to fund your retirement, such as a pension or Individual Savings Accounts?

Don’t forget that you’ll still need to find money for rent when you give up work whereas house buyers will have hopefully cleared their mortgages.


Next: Step 2 - What can I afford?