Should I buy or rent a home?

In summary:

If you’re in a stable financial position to buy (with a big enough deposit and savings to cover upfront costs like stamp duty and conveyancing fees), buying a property can be a powerful investment. Your monthly mortgage payments can help build equity, leading you straight to a mortgage-free future. Plus, your property value is likely to increase over time, securing even more money for your future. 

However, if you have limited savings, need extra flexibility or you aren't sure where you want to live long-term, renting may well be the more practical and affordable option in the short term.

Ultimately, the right choice is totally personal to you. Weigh up all the costs associated with both buying and renting while also considering what living arrangements best suit your current lifestyle and future goals. A house deposit saving calculator can also help aspiring homeowners plan and achieve their deposit goals.

Of course, it’s practically impossible to truly compare like-for-like when working out the costs of buying vs renting a home. But, to help give you a clearer picture, let’s delve into some of the other costs you’ll come across when buying a property. 

Other costs you need to consider when buying a new home versus renting

The upfront costs of buying a property can be significantly higher. And, while monthly mortgage payment can be less than rent, once you factor in things like maintenance and insurance, the total monthly cost of owning can be higher too.

That said, typically, every mortgage payment you make invests money into an asset you will hopefully own outright one day whereas rental payments go straight into a landlord's pocket. Plus, if house prices boom, you’ll be able to sell your property for even more money than you bought it for - making a tidy profit in the process. Do bear in mind, though, that house prices could also decrease. 

Here are just some of the costs you’ll incur when buying a property, versus the costs you need to consider when renting: 

• Deposit. Lenders usually ask for a minimum of 5% of the property value, but it’s common for home buyers to put down more than this. Alternatively, if you’re renting, you’ll usually be charged a refundable tenancy deposit which is capped at five week’s rent

• Stamp duty. The cost will vary depending on your property price and the type of buyer you are. For example, first-time buyers will be exempt from paying stamp duty when buying a property worth less than £300,000. 

• Legal fees. When buying a house, you’ll need to instruct a solicitor or conveyancer. Legal fees can cost around the £2,000 mark, plus additional costs for local searches (which usually cost a few hundred pounds).

• Property valuation fees. Your lender conducts a mortgage valuation to ensure the property you want to buy is worth the price you’re paying for it. Depending on your lender, a property valuation could cost between £100 to £800. 

• Survey costs. You don’t have to get a survey when you buy a house, but it’s recommended that you do as it’ll help to uncover any issues with the property before you commit to the purchase. The cost of a house survey will vary depending on the type of survey you receive and the property type/value. 

• Mortgage product fees. Also known as an arrangement fee, this is charged by the lender to set up and administer the mortgage. Product fees can cost around £1,000 to £2,000 on average.

• Land Registry fees. Usually it costs a few hundred pounds for HM Land Registry to update the register of land and property, but it can cost more depending on the property value. 

• Removal costs. You’ll need to move your things into your new home whether you’re buying or renting. Depending on how far you’re moving and how much you need to move, this could cost anywhere from a few hundred pounds to over a thousand.

• Day-to-day bills. Your general living expenses are likely to be roughly the same whether you’re buying or renting - though you’ll need to consider getting additional insurance when buying a property (such as buildings insurance and mortgage protection insurance). 

• Ongoing maintenance. As a homeowner, you’ll be responsible for all maintenance and repairs - it’s recommended you budget 1% of the property value annually for this. When you rent a property, your landlord will take care of any repair costs. 

Remember, this list isn’t exhaustive - depending on your circumstances, you may also incur other costs when buying or renting a home.

Pros and cons of buying a property

• You build equity. With a repayment mortgage, every mortgage payment is a step towards owning your home outright, providing long-term financial security. Eventually, you’ll own a property that can be passed down through the generations. 

• Your home’s value could increase. Properties typically increase in value over time so you could sell it for a profit in the future. 

• Your monthly payments might be cheaper. Mortgage payments can be lower than rent, depending on where you live and how much deposit you put down. Plus, mortgage payments are likely to gradually reduce over time as your loan-to-value decreases (lower loan-to-value mortgages often come with lower rates). 

• You can decorate to your heart’s content. Renovate, redecorate or refresh your home however and whenever you like without needing a landlord’s permission. 

• You pay more upfront. You’ll need a significant deposit to buy a house, but you’ll also need to save up for things like stamp duty, legal fees, arrangement fees and survey costs.

• Maintenance costs are your responsibility. From a leaky tap to a broken boiler, all repairs are on you, which can be unpredictable and expensive.

• It’s tougher to move. Selling a property can be a slow and costly process, which might not be suitable if you need more flexibility. 

• You could face consequences if you don’t pay your mortgage. You could end up getting into debt and, as an absolute last resort, your lender could even repossess your home if you don’t keep up with your mortgage repayments.

• You could end up in negative equity. If property prices fall, your home could end up being worth less than your mortgage, making it more difficult to move or remortgage.

• Your savings are tied up. It’s likely you’ll put a big chunk of your savings into your deposit, which could limit other investment opportunities. 

• A split could be stressful if you have a joint mortgage. If you rent with another person, parting ways is much more straightforward. Separating ownership of a home can be more complicated and costly.

Pros and cons of renting 

• There are less upfront costs. You won’t need to save for a house deposit or stamp duty. Usually only four or five weeks’ rent is required as a deposit, but you should get this back at the end of your tenancy. 

• You’ll be all moved in sooner. Finding and moving into a rental property is a much quicker process compared to applying for a mortgage and buying a home. 

• It’s more straightforward to move. If you fancy a change, it’s easier to move when your rental agreement comes to an end. You won’t need to find a new tenant or get solicitors involved - you simply need to give your landlord the appropriate notice 

• You’re not responsible for maintenance. Whether it’s peeling paint or broken appliances, your landlord is responsible for arranging and paying for all major repairs and upkeep.

• Live in areas you couldn't afford to buy in. Renting can give you access to homes or neighbourhoods where property prices are otherwise out of reach.

• You take on less risk. Changes in the housing market or mortgage rates won’t directly impact you (unless your landlord decides to increase your rent). 

• Your rent payments go solely to your landlords. This means your money doesn’t contribute towards owning an asset, which could ultimately mean you end up renting for your whole life.

• Your rent can increase. Your landlord can raise the rent when your tenancy is up for renewal, making your housing costs less predictable.

• If property prices increase, you won’t benefit. If property values in your area boom, you won't see any of the financial upside.

• You could be asked to move even if you don’t want to. Your tenancy can be terminated by the landlord (though they’ll have to give you proper notice). 

• You’ll need to abide by rules and restrictions. Many rental properties have rules regarding pets, decorating, smoking or other aspects of living that can limit your freedom.

• You’re reliant on third parties. While plenty of landlords or letting agents are great to deal with, some can be more unreliable or responsive when it comes to discussing repairs or other issues.