There’s no quick answer to whether you should rent or buy. Or in the uncertainty of the current economic climate, no easy answer to ‘should I buy a house before or after Brexit?’
That’s because the benefits of both renting and buying will vary depending on your circumstances. Things like affordability, and your plans for the future.
The decision is up to you. And you should weigh up the pros and cons of each before deciding which option is best for you.
To help you decide if it’s better to rent or buy your home, ask yourself these questions:
If you’re ready to buy, it could be a good time to if home prices in your area have been rising. Buying now can help you stay in a neighbourhood that you might otherwise be priced out of in a few years.
Even if you have no intention of staying there long term, a sharp rise in local property values could mean a large profit when you sell.
The simple answer is, nobody knows.
The uncertainty of what’s going to happen post Brexit has many potential homebuyers wondering whether it’s better to buy now. Or hold off until after the Brexit deadline.
It’s predicted that a no-deal Brexit will lead to a fall in house prices of nearly 10% according to The Office for Budget Responsibility. Or fall by up to 30% according to The Bank of England.
But it’s tough to predict the outcome of Brexit. And it’s up to you whether you put your life on hold for an unknown.
Generally, if you think your quality of life would be improved by buying a house, and you can afford to buy a house, then you should probably buy a house.
If you can afford to buy will depend on:
How much can I borrow?
How much you can borrow is generally a maximum of 5x your income. Or if you’re applying with someone else, 5x your joint income.
You can get an estimate on how much you can borrow using a mortgage affordability calculator.
Affording your deposit and upfront costs
Most mortgage lenders require a deposit of between 5 and 20% of the property price.
But there’s lots of other upfront costs including stamp duty, mortgage fees and legal fees.
Before you start the homebuying process, work out if you can afford all the costs that are involved.
What will my monthly repayments be if I buy?
Your monthly repayments will differ depending on:
If you have a long mortgage term, your monthly payments will be less. But it will cost you more in interest overall.
The more you can save for a deposit, the less you’ll need to borrow overall. That means you’ll get access to better mortgage rates.
You might be able to afford your repayments now. But you’ll need to consider if this is still the case if interest rates change.
Before you consider buying, get a rough estimate of what your monthly payments will be.
The upfront costs of buying a house are much more expensive than renting
Probably the biggest barrier to homeownership is the upfront costs that come with it.
Most mortgage lenders require a deposit of between 5 - 20% of the property price.
If you’re struggling to save for a deposit, you’re not alone. Affording a deposit has become progressively harder.
UK house prices have mostly been rising faster than earnings since the early 1990s. Continued rises in house prices have pushed up the cost of what’s needed for a deposit, making home ownership a more difficult ambition.
But even if you have enough for a deposit, you’ll need to think about the other expensive fees and charges involved in buying a home.
Owning your home means you're responsible for maintenance costs
As a homeowner, you’re responsible for your own maintenance costs. It could range from a small fee to call the plumber out. Or up to £1000s to fix a leaky roof.
If you own a leasehold flat, your lease will say what repairs you're responsible for. You may need to pay into a sinking fund to cover major repairs. And most leases ask you to pay a service charge to cover repairs of communal areas.
If you rent, there’s no need to pay anything towards maintenance costs. Your landlord is generally responsible for fixing any issues with the property.
Buying a house could be cheaper in the long run
Once you’ve paid off your mortgage, the home is yours. You’ll have no monthly repayments to make, leaving you more money for other things.
Buying a home can be a great investment. Usually, most properties will rise in value while you’re living there. When your home value rises while the mortgage debt falls as you repay it, you’re building equity.
If you’ve built equity, you’ll get more back that you paid for it, potentially leaving you with an asset to leave your family or to fund your retirement.
If you’re renting, you will not be building any equity. The money you pay in rent is gone forever.
Should you buy or rent? Here are some things to consider when making your decision.
Benefits of buying a house
Once you’ve paid off your mortgage, your home belongs to you. And if house prices have risen, your house will be worth more than you paid for it. This is called equity. Instead of paying money to a landlord, you’ll have paid money towards an investment.
Having your own home gives you the stability of being part of a neighbourhood and community. And if you have children, helps secure a school catchment area for the future.
Without a landlord to answer to, you’re free to decorate and style your home however you like. You might even be able to add value to the property through home improvements.
Disadvantages of buying a house
Buying a home involves a lot of upfront costs. From large deposits to stamp duty. To all the various fees and charges.
Buying a home is not without its risks. When you own a property, you could suffer from negative equity. This is when the value of the property falls and you owe more than you paid for it.
If anything goes wrong, it’s your responsibility to pay for it. From issues with a leaky roof to a burst pipe. A broken washing machine to a moth eaten carpet. Be prepared for unexpected costs.
Benefits of renting a house
Renting is a much more flexible option. You do not need to sell the property before you up and leave. At the end of your lease, you’re free to go.
Unlike owning your own home, when you move to a new rental property, you avoid paying expensive estate agent and legal fees.
In the future you might want to take a year out and travel the world. You might need to move for work. The flexibility of renting makes it much easier to move around.
Disadvantages of renting a house
Landlords can increase the rent whenever your tenancy agreement ends. And the chances are they will. They can also choose to end the lease, meaning you’ll need to find somewhere else to live.
There might not be much difference in your monthly repayment costs. But when you rent your money is going straight into the landlord’s pocket. Over the years, you’re paying a lot of money towards something you’ll never own.
You might have already decided that buying is the right option for you. But you're not quite able to afford it. If so, there might be a government backed Help to Buy scheme available to you that could help you get on the property ladder sooner.
Rent to Buy, sometimes known as intermediate rent, gives you the option of renting a property at up to 20% below the market rate.
You are sometimes then given the option of buying the property using Shared Ownership at the end of your rental period.
Rent to Buy is not available on all Help to Buy properties. Your local Help to Buy website should let you search for Rent to Buy properties.
You pay a deposit of 5% and the government lends you up to 20% (or 40% in London) to get a mortgage to cover the rest. The government loan is interest free for the first five years. Because you approach the mortgage lender with a much larger deposit, you will be offered a much lower interest rate.
A individual savings account (ISA) that pays a 25% bonus from the government when used to buy your first home.
Offers a 25% government bonus and is open to 18-40-year-olds. You save but cannot access your savings or the bonus until you’ve had the account for a year.
You buy a share of a property, usually 25% to 75%, through a housing association and pay rent on the rest. You have the option of increasing your share of the property in the future.
Edited by: Sebastian Anthony
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