There are many reasons for buying rather than renting or renting rather than buying of course. But a question many buyers, tenants and agents might be interested in knowing the answer to is whether it is better to buy or better to rent. We’ll look at a few of the pros and cons here.
Better to rent?
* It’s quicker to find somewhere to rent .... or at least should be. There’s no waiting months for a chain to complete and a sale to go through etc.
* The upfront costs of renting are lower. There are no Stamp Duty or legal fees to pay etc. While you need a deposit it is only a deposit and not an expense.
* One single monthly payment covers pretty much everything other than domestic bills. It should be easier to budget.
* No maintenance to do. So no maintenance to pay for nor spend weeks every year doing maintenance and repairs.
* Predictable costs. No unexpected bills like having to spend thousands on a new boiler or a new roof.
* You can move more easily whenever you want or need to. For example if you change jobs or want to/need to move house.
* A rental is not yours. You can’t do whatever you like with your home.
* Renting may be insecure. There’s no guarantee you can stay as long as you want to.
* You don’t benefit from rising property prices. But you could be affected by them as higher house prices usually mean higher rents. (On the other hand you don’t lose any money if property prices fall.)
Better to buy?
* You benefit from that ‘own home’ feeling. You can do what you like with it, within reason. You can redecorate, renovate, extend etc.
* You pay for your home over the long term, ie. on a 20 or 25 year mortgage. So it spreads the cost over your working life.
* You can take advantage of cheap money to borrow. (Or at least have been able to for many years now.)
* You can hopefully benefit from price appreciation as the years go by. It could be considered to be a way of saving/investing for the future too.
* The initial buying-in costs (mortgage deposit, taxes and fees etc.) are high.
* There is a risk that property prices might not go up and could even fall.
* You need to spend a lot of money and time doing maintenance. You can face unexpected, high property maintenance and repair bills which you might not be able to afford easily.
* You can’t necessarily move easily if you want or need to – for example if your circumstances change. Selling and moving on can be an expensive and frustrating business.
* Property is a very illiquid asset. Although in theory a house can be worth a lot of money there’s no guarantee you’ll be able to sell it easily, or even sell it at all, in the future.
How does the cost of renting compare with the cost of buying?
This 2021 research from Hamptons said that for the previous five years buying a home had been cheaper than renting on a monthly basis. In March 2020 a purchaser with a 10% deposit would have been £102 per month better off buying than renting. However, in May 2021 it was £71 per month (or 7%) cheaper to rent a home than it was to buy. It would have cost a monthly average of £1,054 to rent compared to £1,125 on mortgage repayments.
The recent Halifax Buying vs Renting Review says that the monthly housing costs for first time buyers are now £115 (13%) or roughly £1,400 year lower than the cost of renting an equivalent home. It says that the difference could add up to more than £27,600 over a 25 year mortgage term. It says that the annual saving for homeowners is over £400 more than 10 years ago.
The research adds that the cost gap is greatest proportionately in Scotland and the North West and by 20%, but greatest in absolute terms in London. The smallest gap between the cost of buying and renting is in Northern Ireland.
In summary it seems that, overall, buying is more cost effective than renting and that renting probably became more financially attractive due to depressed demand for rentals during Covid. In practice, however, the difference in cost between buying and renting is actually quite small. So whether buying is better or renting is better is about more than just the cost.