Most people would assume that renting a property is cheaper than actually buying one. However recent statistics suggest otherwise. Over the last 5 years average price of rent has jumped above the average price of monthly mortgage costs.
Buying a property will most likely be the biggest financial decision you ever make, so it best weigh up the pros and cons rent vs mortgage to make sure you pick the right time to jump on the property ladder.
The UK average price of rent is estimated to be around £720, £60 more than the average monthly mortgage costs which sit around the £660 mark.
There are a few reasons behind this but the main factor is the increase in demand for rental homes. With the average values of homes rising in the UK, many are priced out of the market and are forced to rent. With the market being filled with renters the market becomes much more competitive which drives up the price of rent.
The difference in price varies greatly depending on which region you’re looking to settle in. Some areas are only slightly affected by this, such as Yorkshire & Humber and the East Midlands that only cost 3% more on average to rent. However, regions like the South West and North East show rent prices 9-12% higher than monthly mortgage costs.
Pros and cons of buying a property
Pros
- Buying a home can work out much cheaper long term if your get the right mortgage deal
- Once you’re mortgage is paid off, the house is yours leaving you with valuable asset and a lot more disposable income
- If the market goes your way and the value of your home increases, you could use this to your benefit by buying a bigger home or maybe help fund your retirement.
Cons
- If the market doesn’t go your way and the value of your home decreases, you may be unable to sell if you owe more to your mortgage lender than your home is worth.
- It’s also important to remember that if interest rates go up, then so can your monthly repayments.
- Owning a property means you’re 100% responsible for any repairs or renovations, so it’s best to have a rainy day fund.
Pros and Cons of Renting a property
Pros
- Renting a property is the most cost effective solution if you don’t plan on staying in the area long term
- You will not have to deal with the burden of paying for repairs and maintenance
- The cost of a deposit for buying a home completely dwarfs the deposit needed to rent a property. Meaning the upfront cost is considerably cheaper.
Cons
- Lack of stability and security. The owner can choose to sell their property and leave you house hunting at any time
- The money you spend on rent is money you will never see again, unlike buying a home where your monthly payments go towards an investment for your future
- You won’t have tons of freedom when it comes to decorating your home. Placing furniture and hanging pictures will be fine but changing room colours or carpets will most likely be off limits.
If you are set on buying a property then you need to consider the full cost of getting on the property ladder and whether or not you can afford it. Not only will your require a deposit but you need to be able to pay an legal costs, surveys, Stamp Duty etc.
This should be thoroughly compared against the long term cost of renting before you decided to buy.
Luckily If your first time buyer the government has recently launched a new scheme that is well worth researching. The new Help to Buy scheme is giving first time buyers a 25% boost to their savings, which could be a massive help towards your deposit.
If you need any further advice why not get in touch with us. For mortgage advice we can introduce you to The Finance Planning Group, situated within our premises. As mortgage advisers they have access to over 7000 mortgage products from over 50 lenders. They aim to provide you with great rates which may not be directly available from high street lenders. From time to time, lenders offer some exclusive rates which we can pass onto you directly. They will work with you and explain the differences between the various types of mortgages available.
Call us on 020 8422 5222 if you would like to speak to Eddie Rozario at The Finance Planning Group or email: financialservices@davidconway.co.uk
