Which is really cheaper – renting or buying?

For a long time, the consensus – certainly in the media – has been that owning your own home is cheaper than renting.

Over the past 15 years, thanks to low mortgage rates, rents have, for some, been higher than mortgage repayments on a ‘statistical’ basis. However, even these statistics over the last 18 months, with the cost of mortgages rising sharply due to high inflation, are reporting that it has become cheaper to rent in most of the UK.

At the end of March, Lloyds Banking Group revealed that London, the South-West of England and Scotland were the only locations in 2023 where first-time buyers could save money by buying, rather than renting. The East of England had the largest gap – here renters could be £2,325 better off a year versus owning a home.

But the issue with these comparisons is that they ‘assume’ the renters have savings equivalent to the deposit – and they use the ‘average’ deposits from the likes of the Halifax which range between 17% and 32%. They also run the statistics based on someone buying an ‘average three bedroom’ house.

Clearly this doesn’t necessarily represent the comparisons most buyers or renters would have. So when you look at an individual comparison, for example of a one or two bed flat or terrace with a more realistic deposit of 5-10%, in a lot of comparisons you may well find that renting in the short term is indeed cheaper than buying and has been for some time. The comparisons do take into account things like maintenance, but as it’s not based on a flat, they miss the fact that things like service charges or ground rent may be paid for by the landlord.

It's important to think about how long you are going to live in a property for as typically, if you are going to stay for some years, hopefully the property’s price will increase and you will be able to secure some additional equity to buy your next home. Also, over time, if you buy a home with a repayment mortgage, once you have finished paying off the mortgage, the property is all yours.

So, if you’re trying to decide between renting and buying, here are three things to consider:

1. What’s happening to prices and rents in your local area? Even different parts of the same town can be quite different in terms of supply and demand, and therefore prices and price trends, so speak to local property experts to find out which areas are most affordable for both buying and renting, and what they expect to happen over the next five years. For instance, if you have just enough for a 5% deposit and prices are rising quickly, it may be better to get on the ladder now, before that 5% real-terms cost rises out of your reach. On the other hand, if rents and prices are fairly stable, renting for a few more years could give you more time to save for the deposit you need.

2. Are you happy with the level of risk you’re taking on? If something happens that affects your income and you’re renting, it’s relatively easy to bring a tenancy to an end, but if you own and your only option is to sell, that could take several months and will mean incurring costs. And if you haven’t owned the property for very long and prices have dipped, those costs could outweigh the equity. It’s important to understand the risks as well as the benefits of owning and to know what you’re taking on.

3. Could you let the property? If you bought and then your circumstances changed – e.g. your income reduced, or you were relocated for work – could you let the property, rather than being forced to sell? What changes would you need to make to the property to legally let it? It’s well worth taking advice from letting agents when you buy, and choosing something that has universal appeal to both buyers and tenants, particularly when it’s your first home.

To discuss the local market in more detail, just contact your nearest branch and our sales and lettings experts will be very happy to help.