Choosing whether to rent or buy a house in London? You need a sizable amount of your monthly pay packet for either option. There are a lot of factors to take into account, and making the wrong choice can result in unwanted complications further down the line. While renting might be the right choice for one person, this may not be the case for another. It depends entirely on what you want out of your home. It is important to remember that there is no definite answer for this debate. In this guide, we weigh up the pros and cons of both options to help you decide whether renting or buying is the right choice for you.
Pros of buying a home:
Cheaper, in the long term –
Although mortgages involve high upfront costs, buying a house usually works out to be cheaper than renting in the long run. As a result, mortgages are better to suited to those who are looking to live in their home for an extended period of time. Therefore, it is worth considering how long you plan on living in a particular property before choosing to take out a mortgage.
Home owners can take satisfaction from knowing that their monthly payments are going towards buying their home, and not simply going straight into their landlord’s pocket. Buying a home can be viewed as an investment as opposed to ‘dead money’ (monthly outgoing as rent instead). You also have the freedom to sell your home as you please, and you can even make a profit if the value of your house goes up. If you do not decide to sell, once you pay off your mortgage you will have nothing left to pay.
No Limits –
While a landlord may impose certain rules regarding guests, pets and what changes you can make to your home, buying a house allows you to make the rules. You could choose to redecorate, landscape your garden or renovate as you like. In addition, any modifications you make to house will most likely increase its value, making it easier (and more lucrative) to sell if you choose to do so in the future. Depending on the size of your property, you may also be able to rent out part of it to help pay your monthly mortgage payments.
Peace of mind –
As per the terms of notice agreed to in your tenancy agreement, a landlord may decide to sell or move into their property at any time. Therefore whilst renting, you cannot be certain how far into the future (beyond the notice period) you will be able to remain at the property. When you own your property – you call the shots.
Cons of buying a home:
Expensive upfront costs –
Buying a house comes with various fees to pay upfront. You need to pay a deposit, along with mortgage fees and stamp duty. All of this can add up to a hefty amount, which is why those looking to buy will often have to save up for a while before being able to buy a house, or seek financial help from friends or relatives.
The ownership aspect of buying a house certainly has its benefits but these come with some downsides. As the homeowner, you are responsible for paying for any maintenance that may need to done on your home, which can vary in price and arise unexpectedly. While fixing a toilet can be relatively cheap, replacing a boiler can be expensive (and inconvenient – but then so can waiting for your landlord to fix it).
Moving house can be expensive and you are committed to paying off your mortgage within the agreed terms of your mortgage deal. Depending on the housing market at the time, selling your house may not be the easiest task if you need to move before you have paid off your mortgage. It can take a long time for a house to sell, which restricts you to being able to move house when you like. If you have a joint mortgage with your partner and decide to separate, choosing what to do with your property can be complicated.
Pros of renting a home:
Cheaper, in the short term –
While renting a house will often require you to pay a deposit, this will still be significantly less than the deposit and other fees that come with buying a house. Moreover, you will avoid having to pay for any maintenance costs while renting, as these are paid for by your landlord. For this reason, renting is better suited to those who are not currently in the financial position to afford a deposit and mortgage, but may be eventually. (If you are interested in renting, we have compiled a list some of the cheapest areas to rent in London.)
Choosing to rent makes it much easier to move house if you need to once your lease has finished. Most leases only last for twelve months, which is the same amount of time it could take to sell a house (or even longer in some cases). What is more, some contracts also include a break clause allowing you to leave sooner. Renting is a good choice for those not wanting to live in a particular area permanently. For example, if your job requires you to move around the country frequently, then renting may be the better option for you.
Less risk –
If you rent your house, your landlord is entirely responsible for adapting to the changing conditions of the housing market. You will not have to worry about whether the house decreases in value, as this is up to your landlord to manage.
Cons of renting a home:
The landlord benefits, you don’t –
One of the major drawbacks of renting is that your payments are simply funding your landlord’s bank account rather than a long term investment for yourself. Although a mortgage requires a greater level of commitment, you are paying for something that you may one day have complete ownership of.
Subject to rules –
As your landlord is the one who owns the house, they have the final say over the rules of the lease. These will outlined in your tenancy agreement, so make sure you read it carefully (as we mentioned in our article on common renting mistakes that new tenants make). They may restrict you as to what changes you can make to house or how many guests or pets you can have (if any). The landlord can also make changes to the amount of rent you pay each year, and can even decide to sell the property.
More expensive, in the long term –
Renting is not the most cost effective option for someone looking to live in a house for a prolonged period of time. Unlike a mortgage, you will have to keep paying rent for as long as you live in the property, which will eventually work out to be far more expensive than buying a house. As a result, renting is far better to suited to those looking for more short term housing.
How to decide between the two
Do you have enough money to pay for a deposit and other upfront costs? –
As we mentioned earlier, one of the downsides of buying a house is the higher upfront fees. Most of the time you will need to pay at least 5% of the property’s value as a down payment, as well as any additional mortgage fees and stamp duty. Therefore, it is worth asking yourself whether you can afford to pay these various costs before deciding to take out a mortgage. Generally speaking, the larger the deposit you pay, the lower your monthly payments. If affordability is what is holding you back at the moment, an interest only mortgage may be a good option for you (you can find out more in our bog post).
Do you have the financial stability to pay your mortgage and still live comfortably? –
It is important to assess how much you are earning and work out whether you will have enough to be able to pay your monthly mortgage rate and still have money left over to fund your living expenses (bills, food, leisure activities, etc). There is no point living in a house that is going to force you to make unreasonable cutbacks, so make sure to consider your long term financial situation.
How long do you plan on living in the house for? –
Generally speaking, renting is better for more short term accommodation, while buying a house is a long term commitment. Therefore, if you only plan on staying in a certain area or property for a limited period of time (i.e. up to a year), then it makes more sense to rent. By contrast, if you are looking to stay in your house for the foreseeable future, then buying a house is the more economical option.
As you can see, there are an array of factors to think about when making the choice between renting and buying. James Anderson’s friendly team of experts have helped thousands of Londoners buy and rent homes in South West London. If you are still unsure, visit one of our three branches and speak to a specialist.