Is it better to rent or buy a house?

It’s a question that crops up a lot when looking for a new home. And while there are strong cases for both buying and renting, the answer for which is the right route for you depends on a variety of factors. 

To help you weigh up the options, we’ve provided an overview of the implications of buying and renting a house, including the costs involved, advantages, and disadvantages.

The key differences

1. Asset acquisition. You’re acquiring an asset when you buy property, and its value could increase or decrease in value over time. 

2. Responsibility. As well as the sense of control and autonomy that comes with owning your own home, you’re also responsible for factors such as the property’s maintenance and repairs.

3. Cost differences. The differences in cost between renting and buying vary, depending on factors such as the initial costs, and whether you're in it for the long haul. The tipping point can depend on your personal circumstances at the time of decision-making – and how much money you can spend on the initial deposit and repairs.

What costs are involved?

Buying and renting will pinch your finances in different ways. Let’s dig into the details. 

Buying a house

1. Deposit

Also known as a down payment, the deposit is a substantial financial consideration for many homebuyers. The minimum you’ll need to put down typically starts at 5% of the intended property value.

The average UK house price is currently around £285,000 (as of December 2023). And while 5% is the minimum deposit usually accepted, it's worth noting that paying a higher deposit – around 20% – is likely to secure better interest rates for your mortgage payments. This is because a higher initial investment can signal less risk to mortgage lenders, so they might be more inclined to offer better terms. 

Of course, personal finances determine the feasibility of a higher deposit. Some people may prefer to delay buying a home until they can grow their savings. For others, the increases in average rent prices make becoming a new homeowner a more urgent priority.

2. Stamp duty

Stamp duty land tax (SDLT) is a tax paid when you purchase property in the UK. Essentially, the more your property is worth, the more SDLT you can expect to pay. 

For details on the current stamp duty rates and how much you can expect to pay, check out the government website here.

3. Legal fees

Solicitor costs vary based on the property’s value. The conveyancing fees (money paid to legal experts to manage your property sale) of home purchase agreements also depend on whether you buy a leasehold or freehold property.  The average solicitor fees in the UK can range from £500 to £2,000, and the figure is influenced by factors such as the costs of your property, whether your house is newly built or not, and whether it’s freehold or leasehold. 

4. Surveyor’s fee

While getting a survey isn't legally required, it's usually a good idea to ensure there aren’t any hidden surprises post-purchase. Surveys are expert-led inspections of the home you want to purchase that aim to establish its condition and reveal any potential problems. They’re usually undertaken after your offer has been accepted, and their cost can vary based on their extensiveness:

• A basic survey (Level 2 home surveys) identifies defects and can include a market valuation of the house price. A basic, Level 2 survey usually costs from £400 to £1,000, but the price can vary depending on the property’s value.

• A detailed survey (Level 3 building survey) provides extra details on property conditions, defects, and repair costs. Level 3 building surveys usually cost from £500 to £1,500, subject to the property’s value.

5. Product fees

Product fees, also known as arrangement fees, are made to a lender to cover the administrative costs of arranging the mortgage. Some mortgage lenders won't issue you any product fees, while others may charge up to £2k for the cost of setting up a new mortgage agreement. It's also important to consider any broker fees if you plan on using one.

Rental costs

Renting a house involves more costs than just the monthly rent payments, including:

• The deposit. This is now capped to a maximum of five weeks’ rent, or six if your annual rent value is over £50,000. Find out more on the government website here. You can sometimes find private landlords who will consider low or no deposits, but most rental agencies will require one. Some deposit assistance schemes in the UK may support lower-income individuals with deposits. 

• The costs of moving. These expenses depend on how far away you’re moving and what you need to transport. There are ways to keep these costs down, such as by using your own vehicle and asking friends and family members to help out. Otherwise, it’s best to budget for a private moving service. 

• Initial costs. These can include new furniture, household appliances, cleaning products, and other decorative items. 

Advantages of buying a house

1. A sense of security

The prospect of owning a home gives many people a sense of security. Unlike short-term rental agreements that can allow short-notice contract terminations, a mortgage is a long-term agreement that ends with the buyer owning the property.

Also, compared to renting, buying a house can make the property feel more like yours – you can make changes as you please, without needing a landlord’s consent, and you’re not paying off someone else’s mortgage. 

2. The potential of equity building

Equity is the difference between your property’s value and how much you owe on its mortgage. In other words, it’s the portion of the home that you currently own.

Home equity is primarily influenced by mortgage payments and market conditions. Mortgage payments contribute to paying off interest and reducing your balance, which increases your equity over time. And while market conditions can cause your property’s value to decrease or increase at times, a home’s value generally increases over the long term. 

Building equity increases the money you have in the form of assets and can contribute to financial stability.

3. A stronger credit record

Demonstrating your ability to make monthly mortgage periods on an ongoing basis can boost your credit report and score over time. The situation is a bit of a catch-22 because to purchase property in the first place, you usually need to have built up a reasonable credit score. But, over time, owning a home can create a stronger credit record, which may be valuable to you, and your mortgage lender, in the future. 

Disadvantages of buying a home

We've previously mentioned the initial costs required for home ownership can be a barrier for some people, but there are a couple of other potential disadvantages to factor in.

1. Increased responsibility and additional costs

Being a homeowner means you’re responsible for the property entirely, including repairs and maintenance. Some people prefer this level of control, while for others, the added responsibility can be a drain on their time, energy, and resources. So, it’s important to factor in these additional costs. 

2. Variable mortgage rates

While it’s common to enter into a fixed-rate mortgage initially, they’re usually only fixed for a period of 5 or 10 years in the UK. So when your fixed mortgage rate expires, the interest rates on it can increase depending on the state of the market.

Advantages of renting

1. Lower deposits

Recent law changes in the UK have meant that a rental deposit is now usually capped at a maximum of five weeks' rent, or six weeks if the annual rent value is over £50,000, and many rental deposits are now around one month's rent. This lowers the barrier of entry for renting, making it more accessible. 

2. No responsibility for repairs

While tenants are responsible for accidental or intentional damages, they’re generally not responsible for ongoing costs linked to general household maintenance and repairs. Your landlord is responsible for ensuring the house you rent is in a good standard of repair, and, crucially, is safe to live in.  

3. Flexibility

Renting a home doesn’t tie you to it in the way buying one does. If you ever want to move to another location, it’s usually easier to do so as a tenant. This is because rental agreements are typically shorter and easier to get out of.

4.  More accessible to people with low credit scores 

While both landlords and mortgage lenders perform credit checks, the impact of a lower credit score is generally different on renting than on buying. When buying, a lower credit score can contribute to less favourable mortgage terms – such as a higher interest rate. But a lower credit score is unlikely to affect the amount of rent you pay. 

However, a lower credit score may shrink the pools of both landlords and lenders willing to give you the green light. So while a credit score can reduce your options for both buying and renting a house, its financial implications are typically less for renting. 

Disadvantages of renting

While the barrier to entry is typically lower for renting, it’s not without its drawbacks. These include:

1. No ability to build equity

While buying a home is considered a long-term investment, renting doesn’t offer this equity building. You’ll still have a place to live, but at the end of the rental period, you haven't contributed to an asset that's yours. 

2. Rent increases

Unlike mortgages which can have a fixed rate for a few years, rent typically increases more frequently. Rent costs are also at an all-time high in the UK. So if you’re considering renting a house, it’s best to make sure you’re clear on how much the rent will increase over a given period. 

To recap:

Both renting and buying a house come with their own pros and cons, so it’s important to consider your personal circumstances, finances, and goals when deciding between the two. Some people value specific advantages over others – e.g., building equity might be a priority, or the flexibility that renting offers might be essential. 

It’s really about figuring out what arrangement works best for you, including the benefits that are most important to you and which drawbacks you’re willing to live with.