With mortgage rates rising and households facing increasing cost of living pressures, the question of whether it is better to buy or rent is becoming more and more relevant to prospective homebuyers.
Property prices have surged over the past couple of years resulting in the average price of a home being over 25% higher than 5 years ago.
However, a shortage of rental properties and high tenant demand have seen an even higher increase in rental prices of over 30% during the same period.
Although mortgage interest rates have risen over the past 6 months there are still lots of mortgage deals to choose from if you have a minimum 5% deposit, so with house price inflation forecast to stabilise is now a good time to buy or rent?
If you are looking at up front costs, then it is undoubtedly cheaper to rent: deposits have been capped at 5 week’s rent since June 2019 and you only need to pay the equivalent of 1 week’s rent to reserve a property.
Buyers have much higher costs: in addition to finding the 5% deposit, which on your average local property is going to be in the region of £7,500, you’ll also have to pay survey and solicitors fees that can quickly add up to over £1,000. Stamp duty may also have to be factored into the equation, although first time buyers are exempt from this provided that they are not purchasing a home over £425,000!
Once you’ve moved into your new home, the monthly costs for renting are on average cheaper than buying due to the initial mortgage interest being charged to buyers, although the tipping point for this is after two years when the interest portion of your mortgage payments becomes less than you would have paid in rent.
The longer term benefits of buying are that your mortgage payments are gradually building up equity. Anyone who bought their home 5-10 years ago for example, would be substantially better off than had they been renting.
So what are the main pros and cons?
Pros of Renting
- Flexibility – tenants can move at relatively short notice
- Lower up front costs
- Landlord responsible for repairs and maintenance, payment of building insurance and any service charges.
- You can rent in an area where it may otherwise have been out of your price range to buy.
Cons of Renting
- No opportunity to build equity as its your landlords mortgage that you are paying for not your own.
- Less security as your landlord may raise your rent or ask you to leave the property at the end of a term of tenancy.
Pros of Buying
- You can build up equity as you pay your mortgage
- There is an opportunity to benefit from rising house prices over time
- Freedom to improve the property and alter your living space
Cons of Buying
- Risk of negative equity if house prices fall.
- Higher up front costs
- Less flexibility to move if your circumstances change
- Responsible for Maintenance
In 2023, the decision as to whether to buy or to rent is really down to your personal circumstances, your lifestyle and your medium to long term plans for the future.
If you’d like to find out more about how to buy or rent your next home, then speak to one of our knowledgeable property specialists.
