Renting vs paying a mortgage: The pros and cons

If you can’t afford to buy your own home, you have the option of renting a home instead. In some instances, there are advantages to renting, as we will discuss below. However, there are disadvantages too so while renting can sometimes seem like the best option, saving up to buy a house could be the wisest thing to do.

In this guide, we will take a closer look at the differences between renting and buying a house, the pros and cons, and how one of these options could end up costing you more over time.

If you decide to take a mortgage after reading this guide, get in touch with our team and we will explore your options with you.

Should I buy or rent a house?

Should you rent or buy a house? It’s a question most of us are faced with in our lifetime as not many of us want to live under our parents’ roof forever. But which is the best option for you? Well, that depends on your financial circumstances and your future plans.

If you can afford to pay for a deposit and the subsequent mortgage costs, then buying your own home is a sensible choice. But if you can’t afford a deposit and if you don’t plan on living in one place for very long, then renting a property could be the right thing to do – for the short term, at least!

Let’s take a look at some of the considerations you need to make.

Is it cheaper to rent or buy a house?

Before we answer whether it is cheaper to rent or buy a house with a mortgage, let’s look at an overview of what is most cost-effective.

Upfront costs

In terms of upfront costs, buying a house is more expensive. This is because of raising money for a mortgage deposit, lender fees, legal fees, survey costs, and other expenses.

There are also upfront costs when renting a property, including an advance rental payment and a tenancy deposit, but these are unlikely to exceed the costs associated with purchasing a house.

Monthly Payments

In terms of your monthly payments, paying for a mortgage can sometimes be cheaper than paying rent.

According to the HomeLet Rental Index, the average monthly rent for a new tenancy in the UK is £1,159 at the time of writing (October 2022). Compare to the average mortgage payment which is around £723 a month, it’s clear that paying for a mortgage can be cheaper.

Of course, the amount of rent you pay will depend on which part of the country you live in, as some places are more expensive than others. National statistics show the average price for a property has soared over the last few decades, especially in many sought-after locations such as Central London, so landlords in these areas will expect you to pay more over the rental period to cover their mortgage expenses. In other areas, including towns within the North East, rent is cheaper so you might pay less on rent per month than you would a mortgage.

The amount you pay on a mortgage will depend on interest rates at the time so you may end up paying more on your mortgage if interest rates are high. But when interest rates are low your monthly mortgage payments will be smaller and on average, will be cheaper per month than paying four weeks’ rent.

The bottom line

If you intend on staying in a rental property long term or if you regularly move into a new rental property, you will need to make payments indefinitely! As such, you will end up paying more on rent than on a mortgage if you’re renting for a significant number of years.

As such, getting a mortgage could be the cheapest option, especially in areas where rental costs are high. But whether or not this is the best option for you right now depends on your personal circumstances.

Advantages of buying a home

There are lots of advantages to buying a home. These include the following.

• Your monthly mortgage payment goes towards buying your property and not the landlord’s mortgage
• You can control your costs with a fixed-rate mortgage, which is something you might not be able to do if your landlord occasionally raises your rent
• At the end of the mortgage term, you will own your own home and you will have no more mortgage payments to make
• If house prices rise, you could make a profit if you decide to sell your property
• You can increase home value by making renovations
• Your home is an asset that can be passed on to a family member when you die
• You can’t be evicted by a landlord
• You don’t need a landlord’s permission to do anything so you have the right to put your own stamp on the property

Disadvantages of buying a home

Disadvantages of buying a home include the following.

• Due to the mortgage deposit, stamp duty, lender fees, and other upfront costs, there will be a big dent in your finances in the short term
• If you’re on a variable-rate mortgage, your mortgage repayments will go up if interest rates rise
• The payments on your mortgage will also rise if you end up on your lender’s standard variable rate when your initial deal ends – this can be avoided by remortgaging onto a new mortgage deal
• You’re responsible for maintenance costs and any other unexpected costs related to home ownership
• There is less flexibility when it comes to moving to a new house as you will need to find a buyer for your property first

Advantages of renting a home

Buying a house has plenty of benefits but there are benefits to renting a property too.

• You have fewer restrictions if you need to switch properties regularly
• Your landlord will pay for any maintenance costs
• Upfront costs are cheaper
• Budgeting will be easier if your utility bills are included in your rental payments
• You won’t lose money if property prices go down

Disadvantages of renting a home

Renting a house has some obvious disadvantages. These include the following.

• Renting a property means you don’t own the property you are living in
• It’s the landlord rather than you who will profit from the property if house prices rise
• Your hard-earned money goes into the landlord’s pocket
• You may need to pay more if the landlord decides to increase your monthly rent
• If the landlord decides to sell or get new tenants you will need to leave the property
• You will need to abide by the rules on your tenancy agreement

When it comes to paying rent what do renters pay?

When you move into a rental property you don’t need to pay mortgage fees, legal fees, stamp duty, building insurance, or any extra costs related to property maintenance. However, you will still need to budget for most of the following outside of your month’s rent.

• Council tax
• Energy bills (unless these are part of your rental payments)
• Phone and broadband costs
• TV licence
• Contents insurance (if you want to protect your belongings)
• Service charges (if you live in a home with a communal area)

With the exception of service charges, you will also need to cover these additional costs if you buy a house. But if your mortgage payments are cheaper than the monthly rent in your local area, you will be financially better off.

Key differences between buying and renting

The following are some of the main differences between buying and renting.

House prices

If you buy a property, you will benefit if it rises in value. This is because you may be able to afford a bigger property if you choose to sell it and use your home’s equity to pay for the deposit of your next home.

You could also use your home’s equity to consolidate debts, make renovations or home improvements, or use it for any other means related to your life goals and personal circumstances.

If you rent the property, you won’t profit if it goes up in value. Your landlord may be rubbing his hands in glee, however, if he decides to move you out and use the equity for his own purposes.

Tax Expenses

Homeownership comes with several expenses, and some of these are related to taxes. So, if you buy a home, you may be liable for the following taxes.

• Stamp duty if you buy a home in England or Wales that costs £125,000 or more (a first-time buyer is exempt from this if the property costs less than £500,000)
• Land and Buildings Transaction Tax if you buy a home in Scotland
• Land Transactions Tax if you buy a home in Wales
• Capital Gains Tax may be due when you sell your house if you have rented it out or used part of it for your business

If you rent a property, you won’t need to worry about any of these tax expenses.

Repairs and Maintenance

If you purchase your own home, you are liable for repairs and maintenance costs. It’s wise to have an emergency fund in place to cover these expenses as you may be out of pocket if disaster strikes and you need to hire a contractor in a hurry.

If you rent a property, all the costs related to repairs and maintenance will be covered by your landlord.

Considerations when deciding whether to rent or buy?

When deciding whether to rent or buy, ask yourself the following questions.

Do I have enough for a deposit?

It’s sometimes possible to get a mortgage without a deposit – these are known as 100% mortgages – but they are rare, and you will need to meet the lender’s pre-conditions, such as having a very good credit rating.

As 100% mortgages are rare, you will likely need to save up for a mortgage deposit. The more you put down as a deposit, the cheaper your mortgage will be as you will benefit from lower interest on your monthly repayments.

It’s still possible to put down a smaller deposit, such as a 5% deposit with a 95% loan-to-value mortgage but your monthly mortgage repayments will be higher due to the added interest charges.

If you don’t have enough for a deposit, you may need to rent for a time, unless you’re eligible for a help-to-buy scheme or have a friend or family member willing to gift you the deposit.

Do I have enough to pay for the upfront cost of buying a home?

As we mentioned, you will have to pay for upfront costs related to buying a home. These include:

• Valuation fees
• Solicitor’s fees
• Estate agent fees
• Mortgage fees
• Moving costs
• Stamp duty (unless the property is valued at £125,000 or less, or you’re a first-time buyer purchasing a property under £500,000).

Do I earn enough to afford a mortgage?

When you make your mortgage application, your lender will consider your income when assessing your affordability for a mortgage. If you don’t meet their minimum income threshold, your application may be turned down.

You can check your affordability for a mortgage using a mortgage affordability calculator. Our fee-free mortgage advisors can calculate your affordability as well as get you a mortgage for free.

If you aren’t earning enough, you may still be eligible for a mortgage if you take out a joint mortgage with a partner or even a joint mortgage with your parents, so speak to a member of our team for further advice.

How long will I stay in my next home?

If you intend to live in one area for a long period of time, buying a house can sometimes be advisable. But if you don’t plan to stick around in one area for very long, then renting a property could be the more sensible and cheaper option.

Will I be living alone or with someone else?

If you’re living by yourself, you will need to figure out how you’re going to pay the mortgage alone, unless you’re able to get a joint mortgage with your parents or another third party willing to help you get on the property ladder.

If you are living with somebody else, your chances of affording a mortgage are greater if your combined earnings make you both eligible for a joint mortgage.

Are there other ways of getting help to buy a home?

Yes! There are various government schemes you may be eligible for, such as the Help to Buy equity loan scheme if you’re a first-time buyer or the Right to Buy scheme if you’re currently a council tenant. As such, you may be able to get onto the property market sooner if you have enough disposable income to cover your monthly repayments.

Check with your local authority or local housing association for further information.

Should I rent or buy FAQs