Rent or buy: What’s the difference?

If you rent a home, you live in a house or flat owned by someone else. 

If you buy a home, you live somewhere that belongs to you. You’ll have more rights over the property, but more responsibilities too.

Paying rent or paying a mortgage

Whether you rent or buy, you’ll need to pay for the roof over your head.

If you rent, you’ll pay your landlord rent for each month you live in the property.

If you buy, you’ll need to pay your mortgage each month until you've paid off the whole loan. You’ll then own the property outright.

Or if you have enough money, you can pay for a property in cash. This way you’ll own it from day 1.

Is it better to rent or buy?

Whether it’s best to rent or buy will depend on your personal circumstances.

Buying a home can be more cost effective over the long term. While renting offers some flexibility and can be cheaper in the short term.

We’ve taken a look at the pros and cons of buying or renting a home.

The pros of renting

By renting you:

  • could find it quicker and cheaper to find a home than the buying process

  • may be able to rent a home in an area where you cannot afford to buy

  • have more flexibility. You can often move in with just 1 month's notice after the fixed term of your tenancy. This could be 6 or 12 months

  • will not lose money if property prices fall

  • do not have to pay repairs and maintenance as it's your landlords responsibility

The cons of renting

The downside to renting is that:

  • you will not own the property you live in

  • it can be hard to afford after you retire

  • your landlord could ask you to leave with just 2 months’ notice

  • your landlord can restrict what you can do in, or to, the property. For example, you’ll likely need to get permission to redecorate or own a pet

  • once your initial tenancy contract ends, your landlord can put the rent up

  • you could find it hard to get your deposit back from your landlord when you move out

The pros of buying

The benefits of buying are that:

  • your monthly mortgage repayments go towards owning your whole home

  • once you’ve paid off your mortgage you’ll no longer need to pay each month for somewhere to live

  • you can make bigger changes to your home, like building an extension or renovating the garden

  • you’ll feel more secure as a landlord cannot serve notice for you to leave

  • if your home’s value goes up, you could use the equity to buy a bigger home or spend it on other things. Equity is your property’s value minus your mortgage debt

The cons of buying

The downside to buying is that:

  • you’ll need to save a large amount of money. This is for upfront costs such as a deposit, mortgage fees, surveys, solicitors and stamp duty

  • it's a big commitment. You need to be sure you’re happy with what you’re buying and be planning to live there long term

  • selling can take a long time

  • if the value of your home drops, you might fall into negative equity. This is when you owe more on your mortgage than your home is worth. Negative equity can make it difficult to sell or remortgage your home

  • you’ll have to pay for repairs and maintenance.

  • your home could be repossessed if you fall behind on your mortgage repayments

Is it cheaper to rent or buy a house?

It’s usually cheaper to rent a house in the short term. This is due to lower upfront costs, and the costs of maintaining a property.

But if your long term goal is to own a home, buying is a better investment.

The deposit

If you’re renting you usually only need a deposit of 1 month’s rent. 

The average rent deposit in the UK is  £1,300, according to Hamilton Fraser.¹ 

If you’ve paid all rent due, and not damaged the property, you should get this money back when you move out.

If you buy a property you’ll often need a deposit of at least 5% of the property’s value. 

In April 2021, the average property price in the UK was around £251,000. This means a 5% deposit would be about £12,550.²

As coronavirus is affecting mortgage lenders, you’ll need a deposit of at least 10%. 

Stamp duty

When you buy a home you’ll also need to pay stamp duty and other costs.

A first time buyer paying between £300,000 and £500,000 for a home will pay 5% stamp duty on the amount over £300,000. So if you bought a property for £400,000, you’d pay £5,000 in stamp duty.

In England and Northern Ireland you do not pay stamp duty if you’re a first time buyer and your new home is under £300,000. 

The Money Advice Service found buyers usually pay:

  • a mortgage valuation fee of between £150 and £1,500

  • surveyor’s fees of £250 to £600

  • legal fees of between £800 and £1,500

  • bank transfer fees of £40 to £50³

If you’re renting, you do not have to pay to repair or maintain your property. If the boiler breaks down or the roof leaks, it’s down to the landlord to fix it and pay for it.

According to LV=, UK landlords spend over £3,000 each year to maintain each rental property they own.⁴

Costs can include:

  • renovations and refurbishments

  • replacing or repairing the boiler

  • fixing structural damage

  • decorating and garden maintenance

  • replacing or repairing flooring

  • replacing white goods

If you buy a property, you would have to fund all this work yourself.

Can I afford to buy a house?

Our mortgage calculator will give you an idea of how much you might be able to borrow to buy a house. 

A mortgage broker or lender can give you a more accurate figure based on your situation. When working out if you can afford to buy a house, you need to consider:

  • the upfront costs of buying a house

  • the cost of maintenance and repairs

  • monthly mortgage repayments

  • how much utility bills such as gas, electricity, water and broadband will cost

The government has several schemes in place to help you buy your first home. These include Help to Buy and shared ownership

Read more about government schemes.

When should I buy a house?

You should only consider buying a house when you’re sure you can afford it. And that you'll be happy to stay in the property long term.

If you only live in the house for a short time or expect your circumstances to change, renting might be cheaper and more flexible.

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Your home could be repossessed if you don't keep up repayments on your mortgage.

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Sources

¹ Hamilton Fraser: Introducing our new brand, Ome, and its Deposit Replacement Membership

² Office of National Statistics: UK House Price Index, April 2021

³ Money Advice Service: The cost of buying a house and moving

LV: UK landlords spend £4.7 billion a year on their rental properties