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Buying or renting a home in the UK? Pros and cons

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What pays off more, renting or buying? We’re sure you’ve wondered about this, after all you’re reading this article! Today will look at which option is more beneficial and what factors you need to consider when looking for a renting property in the UK.

Buying or renting a home in the UK Extend Finance

Why do people want to buy homes?

Ownership of their own house or flat is the dream of up to 86% of UK residents (source: Buying vs Renting: Benefits of buying). While it is very easy to understand the need to have your own space, tailored to your personal preferences, we need to bear in mind the practicalities. Property in the UK is very expensive, and buying it often involves taking out a mortgage for many years and can negatively impact your mobility.

On the other hand, renting a house allows you to be less attached to a place, which may be an advantage for young people, but after 10 or 15 years of paying rent, your wealth will not have increased in any way. Often you will find that instead of paying off your mortgage, you will be bailing out a landlord who has taken out a buy to let mortgage.

The choice is not easy, so let us now analyse for ourselves all the advantages and disadvantages of the two solutions.

Buying a property in the UK

Let’s start with the more expensive and more demanding option, i.e. purchase.

Advantages of buying

By becoming a property owner in the UK, you gain:

  • Security – if you pay your instalments in full and on time, no one will kick you out of your home. There is no question of an unjustified rent increase forcing you to move.
  • Freedom – by owning a house or flat, you do not have to ask anyone for their opinion on how it should be decorated. You can also carry out all sorts of renovations and improvements that will enhance your quality of life and increase the value of your property. Of course, you have to comply with current regulations and standards, but the freedom is truly significant.
  • An investment – as property prices in the UK have been rising steadily in recent years, owning a home is a good investment for many people. While there is no guarantee that property prices will rise in future years, there is a good chance that they will do so in the long term.
  • Lower and lower payments – as you pay off each instalment, the ratio of the mortgage amount to the value of your home decreases. After a while, you may find that by doing a remortgage you will get noticeably lower instalments. Of course, this will happen if interest rates stay the same or fall.
  • The ability to predict your spending – many mortgages in the UK have fixed rates, frozen for 2, 3 or 5 years. This means that your instalment amount will be predictable over a long period of time. If you choose to rent, you won’t have this certainty.
  • The ability to choose favourable insurance – when you decide to rent, you cannot choose any policy for the house you live in. Contrary to what you might think, this is very important, as well-chosen insurance is a guarantee of comfort.

Disadvantages of buying a house

When buying a home, you have to reckon with:

  • Large start-up expenses – to buy a home in the UK, you typically have a deposit of at least 5% of the value of the property. Many people have a much larger deposit, which often runs into tens of thousands of pounds. In addition to the deposit itself, you will also face other sizable expenses (valuation fee, conveyancing, sometimes Stamp duty land tax). When you buy a house, you get rid of all the savings you could have invested in other ways. However, let us point out that since May it has been possible to apply for a mortgage without a deposit.
  • Additional costs – owning a house or flat is also a responsibility. As a homeowner, you have to take care of it, and this involves repairs and costs. Also, you have to (or should) pay various types of insurance as a owner, such as building insurance, boiler insurance, drainage insurance and others.
  • Being tied to one place – having a mortgage and a house ties you to one place. It is much more difficult to sell your home and buy a new one rather than simply terminating your rental. This may make it impossible for you to change to a better job.
  • Potential price falls in the property market – there is no guarantee that property prices will continue to rise. Mortgage rates have recently been moving against buyers. If the property market crashes, you could find yourself in a ‘negative equity’ situation of owning a property with a property value lower than the remaining mortgage.

Renting a property in the UK

Renting a house or flat in the UK, in some situations, can be a sensible solution. Let’s start by listing the advantages of this solution:

Renting – advantages

  • Flexibility and mobility – by renting a house or flat, you can relatively easily give it up and relocate. Usually, your first contract is for 12 months, but after a year, you only have a one-month notice period. This is an advantage if you are planning to leave the UK or are looking for a job and are willing to move.
  • No mortgage – by renting a property, you are not paying a mortgage, which is a long-term financial burden. Of course, you do have to pay for the rent itself, but many people don’t like the situation of having a large financial commitment hanging over them.
  • Lower upfront expenses – a lot depends on your circumstances, but it can generally be assumed that in the short term, renting is simply cheaper than buying a house. You will also need a deposit to rent a property, but this will be a much smaller amount than the mortgage deposit.
  • Absence of certain additional fees – it is common for a landlord to cover many of the fees that you would have to pay if you decided to own the property yourself. An example would be building insurance. Similarly, there may be common costs or ground rent, which are usually already included in the rent if you rent a flat. Generally, by renting a flat, you avoid unforeseen and large costs related to repairs or renovations.

Renting property in the UK – disadvantages

Let’s now turn to the disadvantages that come with renting a property:

  • Financial dead-end – the biggest disadvantage of permanently renting your house and flat is that you will never become a homeowner. Even if it takes 25 or 30 years to pay off your mortgage, you will eventually be freed from this commitment and be left with a property that you can do what you see fit with. If you rent a house, you will have to pay rent for the rest of your life without building up your wealth. To do otherwise, you would have to invest the money in something else, and that usually doesn’t work out…
  • Stress and uncertainty – when renting a property, you are reliant on the goodwill of the landlord. At the end of the contract, he or she can terminate your contract at any time. The termination period is a few months, but there is no guarantee that this situation will not happen to you several times during your life. Of course, some people rent a single property for entire years without any problems, but you have to reckon with this risk, regardless of your current relationship with the landlord.
  • Less control – at the end of the contract, you have no assurance that the rental fees will not increase. When you rent a property, you are also not free to adapt or renovate it. Most tenants don’t want to spend money on someone else’s property, which can result in a less comfortable life.

These are actually the most important points to bear in mind when deciding on one route. It is difficult to present the financial side of such a choice, as it depends on many factors (rental price, property value, deposit amount, mortgage interest rate, etc.).

As long as you plan to stay in the UK for a few years or longer, buying a house or flat seems like a sensible option. Yes, you have to go through the buying process and pay a lot of money at the start, but you become the owner of the property, which is how you stabilise your financial and living situation.

What many of our customers don’t realise is that mortgages in the UK are very flexible. Depending on the deal, you can switch to another mortgage at a later date, sell the property, buy another property, etc.

Are you thinking about buying a property in the UK? Write to us! Our team will be happy to help you at virtually every stage of the process. We will take care of diagnosing your finances, help you choose a convenient mortgage and recommend a proven solicitor. Not sure if you can afford to buy? Make an appointment for a free consultation, during which we will check your creditworthiness. The meeting is no obligation and usually takes less than half an hour!

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Our team is here to assist you. Contact us by completing the form below.

Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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