We have all heard the narrative that buying a home is a long-term investment. But with climbing property prices and interest rates, is it still the same reliable investment that we have always believed? The debate between renting vs buying is nothing new, and one that I come across often. However, what it ultimately comes down to is personal goals, finances and lifestyle. If you are somebody who likes to move often and have flexibility, then renting will be the right option for you. If you want a sense of stability and a chance to put down your roots, buying will be a favourable option. Let’s break it down and look at this in closer detail.
Is it cheaper to rent or to buy a home?
Purchasing a home involves considerable financial outlay. There are deposits, solicitor fees, tax and home upkeep to consider. Renting, on the other hand, usually consists of a smaller deposit and just the upkeep of bills. That said, if you have the funds, purchasing a home can be an investment in the long run.
For example, if you buy a property for £300,000 with a deposit of £30,000 you will have a mortgage of £270,000 to pay over a fixed term. Let’s say you opted for a 25-year term mortgage. Over the 25 years you will not only pay off your mortgage, but you may also benefit from the increased capital in your home. If we were to look at trends over the last 25 years, your £300,000 home at the end of your mortgage period is likely to be worth well over £500,000 depending on location.
Buying a home is an investment, but as with any investment it is reliant on several factors; fluctuating property prices, the economy and home maintenance will all have an impact.
That said, there are tangible arguments for both sides and it all comes down to personal circumstances.
Advantages of Buying a Property
- Added security of owning your own home.
- Depending on the type of property your purchase, you are free to make home improvements as you see fit.
- Monthly mortgage repayments are often cheaper than rent and are fixed for a period of time.
- You are actively paying off the mortgage. At the end of your agreement, you will own the property outright. This helps with reducing your outgoing as you get older enabling you a better quality of life.
- It is an opportunity to create equity.
- It is an asset that can be passed on when you die.
Disadvantages of Buying a Property
- Buying a home involves a large number of financial extras. You will need at least a 5% deposit and account for stamp duty fees, solicitor costs and property surveys.
- Interest rates may increase over time.
- There is no flexibility to move home at short notice. Selling a property takes time and it can be incredibly stressful.
In recent years, renting has become an increasingly popular choice amongst the younger generation. Zoopla reported in November 2021 that UK rental growth had hit a 13 year high. The highest growth rate since 2008. This is down to many factors. One of these is, that it has become harder to enter the property ladder as house prices have escalated in cost.
Advantages of Renting a Property
- You have the flexibility to move quickly.
- A deposit is affordable.
- There is no need to worry about home maintenance and repairs. Without these concerns, your monthly costs are far more predictable.
- You have a greater scope of location choice as it is cheaper to rent in an area than to buy.
- It is financially less risky than buying a home.
Disadvantages of Renting a Property
- You are paying off somebody else’s mortgage, not your own.
- You can’t make changes to the home’s build or overall design.
- If your property increases in value, you will not benefit from it.
- Your rent can increase considerably when your tenancy is renewed.
- There is less security. If your landlord decides they need the property back, you will only have a short period to relocate.
There’s no clear-cut answer to the renting vs buying debate. Properties remain one of life’s most prevalent investments and they can be a viable way of generating a secure future. If you think sensibly before you buy and look for a property that has potential, buying a home can generate considerable equity. That said, buying a property isn’t always an option for some, and for those that need the flexibility renting brings, this can be the most favourable option.
Let us know what you think. Is buying or renting the better option?