Should I rent or buy?

Details: Published: 09 March 2021; Hits: 2005

Can you afford it?

Whether you’re buying or renting a property, you will likely require a sum of money referred to as a deposit.

When buying a house, the deposit generally equates to at least 10% of the property value. Whereas, when renting a house the deposit will equate to around 4-6 week’s worth of rent.

In both instances, a deposit serves as reassurance to landlords, or mortgage lenders. With regards to mortgage, the deposit assures the lender that you are more likely to be able to meet monthly repayments.

However, whilst landlord deposits can also provide security with regards to monthly repayments, they also offer the landlord assurance should you damage the property. Any damage caused or rent payments missed can be deducted from your deposit.

Deciding whether you buy or rent could simply come down to how much you can afford up- front.

Monthly repayments

When calculating whether or not you can afford to buy/rent a property you must consider monthly repayments as well as the deposit.

When deciding whether or not you can afford the monthly repayments consider your current income and employment status. Are you financially stable? Renting allows tenants more flexibility, should your circumstances change you are able to search for a property with a lower rental cost.

Government ‘help-to-buy’ schemes

If you are a first-time-buyer, you should be aware of housing schemes that work with the Government to help you buy, and take that first step onto the property ladder.

Is now the right time?

Whilst you might be able to afford a deposit and mortgage repayments, this doesn’t necessarily mean you are ready to buy.

First of all, when buying a house it's important you evaluate the condition of the property market and ask yourself ‘is now the right time’? If property prices in your area have been rising, buying now could be a good investment opportunity.

You should also consider the current economic climate when deciding whether now is the right time to buy. Take Brexit for example, should the UK leave the European Union its predicted house prices will fall by 10%-30%.

Secondly, buying a house is a huge commitment, any unforeseen issues are the responsibility of you and you alone. This means any leaking pipes, broken boilers, dodgy electrics are your problem. These responsibilities are the landlord’s concern when you’re renting a property.

The pro’s and con’s

Buying or renting each have their own positives and negatives, it is important you consider these and your personal circumstances when weighing up your options.

Positives of buying

Investment – your monthly mortgage repayments will result in your ownership of the property at the end of the mortgage agreement. This could provide an investment opportunity should house prices rise, or home improvements increase the property’s value, and you chose to sell.
Greater freedom – should you choose to become a pet owner, redecorate or renovate your home, you can do this without requiring the permission of a landlord.
Reduced costs – your monthly mortgage repayments could be less expensive than monthly rental payments in the same neighbourhood.

Negatives of buying

Commitment – as previously discussed, owning a property comes with a lot of responsibility. In addition to this, a mortgage is a larger and longer commitment than a tenancy agreement.
Increased costs – buying a property requires larger upfront expenses than renting a property. However, should your property require any maintenance work, these expenses will also fall on you.
Reduced flexibility – when renting a home, you have the ability to end your tenancy agreement should your circumstances change. However, should your monthly income or relationship status change, choosing what to do with the property can be problematic and expensive.
Reduced freedom – should you decide to relocate you might find it difficult to sell your property.

Positives of renting

Decreased costs – not only does renting have less upfront costs, renting a property also eliminates any maintenance expenses.
Increased flexibility – renting allows tenants the flexibility to give notice and leave the property should their personal circumstances change, for instance if they need to relocate for work or can no longer afford the property.
Reduced responsibility – renting offers tenants less responsibility, should a household appliance break or the property require any maintenance, this responsibility will fall on the landlord.

Negatives of renting

‘Dead money’ – renting a property is often considered ‘dead money’ as you are not building equity. This means over a number of years you can spend thousands of pounds towards something you will never own.
Increased costs – often, a property’s monthly rental might cost more than the average monthly mortgage repayments in the same neighbourhood.
Reduced freedom – rental agreements do not allow tenants to redecorate/renovate a property to their tastes.
Uncertainty – should the landlord decide to sell the property or increase the cost of rent, they are within their right to do this and you will have to endure the consequences.