Rent or buy? How they compare

9th September 2019

couple filling in form

If you’re thinking about getting on to the property ladder, you’re probably wondering whether buying is better for your finances than renting.

Put it this way. From January 2005 to June 2019, the average UK house price rose from £150,633 to £230,292 - a 53% increase. (1)

And despite the current economic uncertainty, UK house prices are still creeping up. They grew by 0.9% in the year to June 2019, according to the same source.

While house prices have risen in the long term, it doesn’t mean they’ll continue to, of course.

It’s also important to remember that average UK house prices have fallen in the short term, sometimes dramatically.

In September 2007, the average house in the UK cost £190,032. By March 2009, (hot on the heels of the 2007/8 financial crisis) they’d sunk to £154,452, a fall of 18.72%. (2)

Graph of average UK house price, Jan 2005 to June 2019

It’s cheaper to buy than rent

It’s certainly cheaper to buy than rent at the moment, according to research published in August 2019 by Capital Economics, a research consultancy. (3)

The monthly cost of paying the interest on a new mortgage is now 62% lower than renting, the consultancy found.

The average monthly rent for a home was £859, compared with the £323 average monthly interest on a new mortgage.

And it seems that buying a home is becoming increasingly cheaper than renting. In the 2000s, paying the interest on a mortgage was only 27% cheaper than paying rent.

To decide whether it's cheaper to buy or rent, you need to compare the interest you pay on a mortgage with rent. You exclude the capital because paying the capital is a form of investment as it’ll reduce your mortgage and increase your equity.

These costs exclude maintenance and utilities, of course.

What you also need to take into account

Renting

On many levels, renting is much easier than buying.

If you’re renting:

  • you don’t need a huge amount of money for a deposit

  • it’s much quicker and easier to move

  • the landlord’s responsible for repairs, such as a leaky roof

  • you have more options about how you invest your money

  • you can live somewhere you can’t afford to buy

But there are also considerable disadvantages to renting.

They include:

  • the worry of not damaging anything so you get your deposit back

  • your landlord might be slow with repairs - or not do them

  • you can’t redecorate

  • you might not be able to stay as long as you’d like

  • you have to abide by your landlord’s rules, such as not having a pet

Buying

The advantages of buying your own home are not only financial.

If you own your home:

  • you can stay as long as you like, as long as you meet the mortgage payments

  • you can do what you want with it, building regs permitted

  • you don’t have to answer to a landlord, unless your home is leasehold

  • you’re more likely to be there for a while and make friends locally

  • it’ll feel more like home

But there are also disadvantages, of course.

Here are some of them:

  • a lot of your money is tied up in one thing

  • you have to pay for repairs, and things like a new roof aren’t cheap

  • if you don’t keep up mortgage repayments you could lose your home

  • it can be a hassle to move if you get a new job elsewhere

  • you might have to live somewhere you’re not keen on because of rising house prices

What’s Right for You?

Before deciding whether to rent or buy, think carefully about:

  • what you can afford

  • how much responsibility you’re prepared to take on

  • how committed you are to staying in one place

If you’re not sure how much you could borrow, or how much your repayments might be, get some free advice from a mortgage broker.

“Getting a foot on the housing ladder can feel like you’re stepping up in the world, but it’s not the right option for everyone,” says Joe Gaytten, a mortgage adviser at Trussle. “So make sure you do your homework first.”

Sources:

1. Office for National Statistics

2. Office for National Statistics

3. Capital Economics

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