Rent or buy?

Which is cheaper? We weigh up the pros and cons to help you decide whether it's best to rent or buy.

WRITTEN BY

Emma Lunn

Mortgage Writer

9th June 2020

In this guide:

Rent or buy: What’s the difference?
Is it better to rent or buy?
Is it cheaper to rent or buy a house?
Can I afford to buy a house?
When to buy a house?

Rent or buy: What’s the difference?

If you rent a home, you’ll be living in a house or flat owned by someone else.

If you buy a home, you’ll be living 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 the entire loan is paid off. You’ll then own the property outright.

The main exception to this is if you have enough money to pay for a property in cash. This way you’ll own it outright from day 1.

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.

Renting

The pros of renting

Finding a home to rent is usually quicker and cheaper than going through the buying process.
You may be able to rent a home in an area where you can’t afford to buy.
Renting is more flexible than buying. You can normally move house with just one month’s notice after the initial fixed term of your tenancy. This could be 6 or 12 months, for example.
You won’t lose money if property prices fall.
It’s up to your landlord to pay for repairs and maintenance.

The cons of renting

You won’t own the property you live in.
Renting after retirement may be difficult to afford.
Your landlord could ask you to leave with just two 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 increase the rent.
You could struggle to get your deposit back from your landlord when you move out.

Buying

The pros of buying

Your monthly mortgage repayments go towards fully owning your 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 you can’t be served notice to leave by a landlord.
If your home’s value increases, 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

You’ll need to save a significant amount of money for upfront costs such as a deposit, mortgage fees, surveys, solicitors and stamp duty.
Buying is 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 your house can take a long time.
If the value of your home decreases, 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 property.
You’ll have to pay for repairs and maintenance.
Your home could be repossessed if you fall behind on your mortgage repayments.

It’s usually cheaper to rent a house in the short term 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.

Lower upfront costs

The deposit

If you’re renting you normally 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 receive this money back when you move out.

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

According to the Land Registry, the average house was worth £230,332 in February 2020. This means a 5% deposit would be £11,517.²

Right now, with coronavirus 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 various other costs.

If you’re a first time buyer paying between £300,000 and £500,000 for your home, you'll pay stamp duty at 5% 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 costs less than £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, and bank transfer fees of £40 to £50.³

Repairs and maintenance

If you’re renting, you won’t 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 more than £3,000 each year maintaining each rental property they own.⁴

Costs can include: