Purchasing a home to call your own is something that many of us aspire to achieve, yet with many often struggling to save for a deposit in order to get onto the property ladder, renting remains the only option.
With a study finding in two-thirds of the UK buying a home is more cost effective than renting, the debate between renting or buying a property has once again been pushed into the spotlight.
On the one hand, home owners have the security that comes with owning a property, something which renters know all too well is in short supply – with landlords able to serve a notice period which effectively could lead some renters stranded with nowhere to go.
However, having said that it’s not all doom and gloom for renters as they forgo many of the formalities that comes with owning a home. With renters in the south of the country paying less than those who own a home in the region. In London, renters save around £1,118 per month, and in Cambridge the difference equates to an average of £549 per month.
Below we’ve rounded up the pros and cons of buying a home compared to renting, to help you understand which option is best for you.
Buying a Property
The average property value in the UK is £207,308, costing around 7.6 times the average annual earnings. Buyers need either a 10% or 5% deposit in order to be able to meet a lender’s criteria to get a mortgage.
With many often struggling to get over this first hurdle to home ownership, the Council of Mortgage Lenders estimated that mortgage lending reached £18.2 billion in February 2017 – a three-month low for British Banking Association approvals. So, while a deposit can be saved up, buyers also have to contend with being approved for a mortgage.
Once buyers have managed to get together a deposit for a home, there are a number of other costs which need to be considered. Additional costs include:
- Property evaluation – this checks that the value of your home is in line with what you are planning to pay. This costs between £200 – £600 on average
- Mortgage arrangement fee – the cost of setting up your mortgage, often added on to your mortgage
- Conveyancing fees – fees for your solicitor include relevant searches, money transfer, land registry fee and any other costs which your solicitor incurs as they deal with the legal aspects of buying a property
- Stamp duty – the tax you pay on land and property transactions. Rates are set between 0% to 12% depending on the price of your property
- House insurance – you’ll need house insurance from the moment you exchange contracts
- Life insurance – the majority of mortgages require you to take out life insurance
- Mortgage broker fees – if you use a broker to obtain your mortgage then you will need to pay a fee – often around £300
You will also need to factor in removal costs which will vary depending on how many belongings you have to move (however, this will also be a cost for renters too). If you are selling your property then you will also be required to pay estate agent fees – these are often worked out as a percentage of the final sale price of your property.
Alongside the initial costs required to purchase a property, there are other ongoing costs which will need to be considered. These include utility providers such as gas, electric, water, phone, internet, TV licence etc, alongside council tax which is determined based on the home you have bought.
Although you may own the property, you may be required to pay ground rent and a service charge if you live in a leasehold property – this often applies to new build houses for the maintenance of green areas. If you live in an apartment, then you may incur service charges.
If living in a town or city centre, then you may find that you have to purchase a parking permit if you own a vehicle.
Aside from the security that you own your home (or at least part of it, alongside your mortgage lender), homeowners have the freedom to make any changes they wish to the property such as extending (with planning permission) and decorating to suit their own style.
Renting a Property
Renting a property is often seen as the cheaper and hassle-free option when compared to buying a home. However, renting still comes with many other costs, contracts and rules which are often not taken into account. The regulations you are required to oblige to as a renter vary from landlord to landlord, for example, if you are renting through a letting agent or with a landlord directly.
The average rental cost was £895 pcm in February 2017, 0.8% higher than the same period last year.
As well as your rent payments, you will also need to pay council tax, utilities and service chargers (in some properties).
Once your property has been secured, then a letting agency may ask you for a holding fee. This is often an upfront amount of your move-in costs. However, if you decide not to proceed with renting the property, then you aren’t likely to get this fee returned to you.
As a renter, you will be subjected to rental and credit checks, and be required to sign a contract which sets out the terms and conditions of your tenancy in the property.
When renting, you are often required to pay at least one month’s rent up-front and a deposit, although this can vary and you may be expected to pay more. Your deposit is usually returned to you if there has been no damage to the property – however, you should always ensure that you have the funds available if the money is not returned to you at the end of your tenancy.
If you’re in an Assured Shorthold Tenancy, then your landlord is legally obliged to put your deposit in a protected scheme. If this has not been done within 30 days of you moving in, then you should contact The Property Ombudsman.
This is due to the legal obligations required of you as a tenant which will be set out in your tenancy agreement. For example, it may state that you are required to maintain the garden, pay the TV licence, have the carpets and windows professionally cleaned before you leave the property and take out contents insurance. It’s advisable that you adhere to what is detailed in your agreement, as you will likely want to use your landlord as a reference for a different rental property.
To avoid unexpected costs, you should ensure that you:
- Are clear with your landlord about which bills are your responsibility to pay
- Take photos of any damage already in the property before you move in. Ensure that the landlord has acknowledged this
- Check the inventory of what’s included in the property and cross-reference before you move out
- Save up so that you have enough money to cover cleaning costs when you move out, and to cover the loss if you don’t get your deposit back
While as a renter you are granted more freedom in your ability up-sticks and move whenever they like (providing the give their notice period and adhere to their tenancy agreement of course), you will find that you are restricted in what you can do to the property.
For example, it’s unlikely that you will be able changes to the layout or décor of the property, change kitchen or bathroom suites, and in some cases put pictures up. If you do make décor changes such as painting a room, then you may be required to return it to a more neutral colour before you move out.
While both renting and owning your own home both have their benefits and drawbacks, if you are able to do so, then purchasing a property is often a more reliable option. Not only will you have a – hopefully – strong investment, but you will also be granted the security that owning a home brings and be able to put your own stamp on the property.
We produced an interactive tool that can help you calculate the costs of moving house. Have a play, it can be quite enlightening!