Should you Rent or Buy a Home?

We look at both options in detail so you’ll have all the information you need to make the best choice.

Updated: January 10, 2024
Rebecca Goodman

Written By

Rebecca Goodman

 

Private rental prices have shot up over the last year but following several interest rate rises by the Bank of England (BoE), mortgages are also a lot more expensive. 

Add to this the cost-of-living crisis which has seen prices of just about everything, from energy bills to food shopping, increase and many people are now considering whether they’re better off renting or buying a property.

There are pros and cons of each option and it’s important to weigh up all the costs of both before making a decision.

In this guide we look at both options in detail so you’ll have all the information you need to make the best choice.

What are the costs of renting?

In the last year the price of renting privately in the UK has risen by 8.9% to an average of £1,279, according to the HomeLet Index, or £1,066 if you exclude London. 

On top of the rent you’ll need to pay monthly, you will also need to pay a deposit to secure a property, which is usually one month’s rent but can be up to six weeks in some cases. This will be kept in a secure deposit protection scheme until you leave the property. 

These are the major costs of renting as if anything goes wrong with the property, such as a flood, a fire, or a broken shower, a landlord or estate agent is responsible for fixing these things. 

You may also choose to buy contents insurance, to cover your belongings, which is around £150 a year on average. 

What are the costs of buying?

There are far more costs involved if you buy a property, starting with the deposit.

Most first-time buyers put down around 10% of the property asking price as a deposit which for a house with £300 would be £30,000.

There are 90% and 95% mortgages available, which require the smallest deposits, yet with one of these you’ll own less of the house overall, and they tend to cost more than mortgages with higher deposits.

Once you’ve paid the deposit you’ll then pay your mortgage through monthly sums. Mortgage costs have risen substantially in the last year after the base rate rises. The overall average interest rate on two-and five-year fixed-rate mortgages are now 5.93% and 5.55% respectively, according to Moneyfacts.

There are usually extra costs as well to be aware of, such as admin and early repayment fees to a mortgage provider and stamp duty in some cases.

You’ll also need to factor in the following costs with a property purchase:

  • Legal fees
  • Valuation
  • Surveys
  • Moving company (unless you do this yourself)
  • Insurance (buildings insurance is usually a legal requirement)

When would renting be a better idea?

Historically, renting is generally not the better option financially.

That’s because if you buy a property it is yours and the money you are paying off is going towards the house. But if you are renting, this money is going to the landlord or estate agent and it’s money you could be putting away into a property you own instead.

However, there are lots of different scenarios to be aware of and in some cases renting may be a better idea. These include the following:

  • If you don’t have a deposit for a property (or are saving for one).
  • If you’re planning on moving soon and are looking for a short-term home.
  • If you are looking for the flexibility of being able to move, either ot a different area or bigger (or smaller) property.
  • If you would like the building and any items included with it, such as the fridge or washing machine, to be someone else’s responsibility if something goes wrong.

It’s worth looking at the cons of renting too:

  • Your landlord may increase the rent at any point.
  • You don’t have any freedom over the decor of the property.
  • You might not be allowed pets.
  • The money you’re paying isn’t yours, and it’s money you could be putting into a property (if you buy).

When would buying a home be a better idea?

If you can afford it, buying is usually a better idea financially.

Here are some of the benefits:

  • It’s your home, you are paying off each month.
  • You can decorate it how you would like.
  • You’re free to do any DIY projects (if planning permission allows you to).
  • You have the security of owning a home and you don’t need to worry about being evicted.

But as with renting, there are some downsides to buying too including the following:

  • If you can’t make your mortgage payments, your home may be taken away.
  • Saving for a deposit takes a long time and you need to factor in other costs too.
  • It can take a long time to buy or sell a property.
  • It’s a big financial commitment, with huge upfront (and ongoing) costs.
  • You are responsible for anything that goes wrong with the property.
  • If house prices fall, you could be left in negative equity.

What’s the best option for me?

In the UK buying a property is the dream for most people, yet it’s not like this everywhere and in many European countries renting is the normal thing to do. Whether you rent or buy is completely your decision and it will most likely be dictated by your finances and your budget. 

If you are able to buy a property, this is the best option in most cases and provides more financial stability. Yet with soaring house prices and a cost-of-living crisis, buying is not an affordable option for everyone. 

If you are renting, it’s important to create an extra layer of security in case you do have to move. This includes building an emergency fund of money, usually between three and six months’ of your income, and also putting money away into a savings account each month, which pays interest. This puts you in the best possible position while renting and will help you on your way to getting onto the property ladder, if that’s a decision you ultimately take.

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