Are you choosing whether to buy or rent a home in London? Either way, you’ll need a significant amount of money each month. Renting is cheaper in the short term, while owning a home is cheaper in the long term. You have a sense of stability in a house you own, but not the freedom you would have if you were a renter.
In terms of monthly accommodation costs, renting is more expensive than buying a home. According to the HomeLet Rental Index, the average rent paid in the UK was £1,069 per calendar month in February 2022. On the other hand, the price of the average house was £277,000, and the average mortgage was around £750 a month. The calculation differs depending on the area of the UK that you wish to live in. The monthly rent in London, on average, is £1,757, whilst in Northern Ireland, it is £705.
Many people cannot afford to get on the property ladder, so do not have a choice between the two. In the past 20 years, the price of housing has increased at a rate that outstrips wage growth. The proportion of people aged between 25 and 34 who own a house was 55% in 1997 and is now closer to 34%, according to the Institute for Fiscal Studies. Some people will never be able to afford to buy a home, especially if they don’t receive any financial help from the Bank of Mum and Dad.
What is more financially viable?
If you’re a first-time buyer, it is likely that you will find it easier to rent a house than to buy one. This is largely because you won’t have to stump up such a large deposit to rent. Rental prices, however, are rising and therefore making it harder to save for a deposit should you ever decide to want to buy. In May 2022, rents reached another record high to an average £1,103 per month according to the Homelet Rental Index. That’s an annual increase of 10.6%.
If you choose to save for a deposit on a house, it could take you nearly 10 years to build up a 15% deposit, according to Hamptons International estate agents. This is a difficult task when savings rates are low and many wages are stagnant.
Benefits of renting
- Short-term tenancies can be as little as three to six months and you can move after this time if it doesn’t work for you, giving you the freedom that buying can’t provide.
- This freedom means you can move to many properties in many areas.
- Leaving rented accommodation is quicker than selling, meaning if your circumstances change, you can be adaptive.
- Unlike when you own a home, you don’t have to worry about maintenance costs, meaning you are not responsible for the likes of a broken boiler.
Benefits of buying
- A landlord cannot kick you out. In the long run, you will have the security of a home.
- The decoration decisions are totally up to you, without restrictions or a deposit to protect.
- Whilst you have to pay for the repair works, the fact that you have control over their completion means it can be done much faster than going through a landlord, who may be unresponsive.
- Interest rates on mortgages are still historically low, though they have increased in recent months. And when your mortgage is paid off, you will own the whole house.
- While you should think of it as a home rather than an investment, if property prices increase, then you will benefit when it comes to selling it.