Invest Money Or Buy House

From being able to freely decorate to the thrill of paying off the mortgage, the benefits of buying over renting are frequently rehearsed.

But there are pros and cons to both. In this article, we outline:

Renting a home: advantages and disadvantages
Buying a home: advantages and disadvantages
Is it better financially to rent or buy?
How long does it take to save for a house deposit?
Is it worth buying a house? Questions you should ask yourself
Is renting really a waste of money?
What costs are involved with renting a house?

The rent vs buy debate

Whether you should rent or buy is an old-age debate that feels particularly loaded at the moment. 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 25 to 34 year olds who own a house has dropped from 55% to 34% over the same period, 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.

But if you're in a fortunate position to be weighing up your options, we outline the upsides and downside of renting and buying.

You might want to read: Is now a good time to buy a house?

Renting a home

Advantages to renting a home

Tenancies can be as short as six months and you can move after this time if it doesn't work for you.
Being able to give notice to vacate gives you flexibility to move to a different type of property or to a different area.
Moving out of a rented home can often be quicker than selling a property, which is useful in case a relationship breaks down. Renting can also be a handy way to test a new relationship.
You don't have to worry about maintenance costs, meaning you are not responsible for the likes of a broken boiler.
If you rent a furnished place, the furniture and white goods are thrown in too.
Getting on the rental ladder is substantially easier, quicker and cheaper than buying a property.
You don't have to pay mortgage or legal fees.
You don't have to worry about house price movements.
Landlords and letting agents can no longer charge admin fees thanks to a law introduced in 2019 (we explain more on this later in this article).

Disadvantages to renting a home

Your landlord might decide to increase your rent when your lease is up for renewal.
You can't redecorate without the approval of your landlord.
You have no control over organising maintenance of your home so repairs can take longer than you would like.
You could have to move if your landlord decides to sell the property, which means you suddenly have to uproot your life and find somewhere else to live.
Renters sometimes find themselves battling with the landlord to get their full deposit back.

Buying a home

Advantages of owning a house

You have the security of a long-term home without the risk of a landlord booting you out.
You can decorate your home without asking permission from anyone.
You have control over organising repair works which might be done quicker than if you were renting.
Interest rates on mortgages are very cheap at the moment, with some lenders offering deals with rates below 1%.
Once you have paid off your mortgage, you will own an entire home.
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

Disadvantages of owning a house

Saving for a deposit is hard work and takes a long time, particularly as house prices are rising which makes it more expensive.
You have to pay mortgage and legal fees and might have to fork out on stamp duty too.
If repairs need doing, you have to foot the bill.
Homeowners are subject to house price movements. If the value of your home drops below the mortgage you secured on it, yo will be in negative equity. Unless you have savings you can use to plug the difference between the value of your home and the mortgage, it will be tricky to remortgage or sell the property.
Even if house prices don't head south, the market can be sluggish. It can take months to sell a property so you can't just move at a moment's notice.
Property is not as safe as houses. Historically, yes, costs of buying have gone up but this doesn't mean that will continue.
Interest rates are low at present, but do not be lulled into a false sense of security. They will go back up at some point, pushing everyone's mortgage payments up too.

You might want to read: Guide to buying your first home

A person standing on a pair of white arrows labelled buy and rent, pointing in opposite directions. — It's a well-known conundrum, but for many people renting is their only option

Is it better financially to rent or buy?

A first-time buyer will find it easier to rent a house than to buy one. This is largely because they won't have to stump up such a large deposit to rent.

Rent is also now cheaper than mortgage repayments on average because of rising property prices.

People buying a house with a 10% deposit now spend an extra £71 a month on mortgage repayments compared to the average rent, according to research by the Hamptons.

By comparison, homeowners were £102 better off a month compared to renters at the start of the pandemic.

How long does it take to save for a house deposit?

It takes nearly 10 years on average for someone to build up a 15% deposit, according to estate agent Hamptons International.

It's an increasingly difficult task for many people as wages stagnate and savings rates are low.

The average property price in the UK is around £254,624, according to the Land Registry. You'd need to have a £13,000 deposit for the minimum 5% deposit, although many lenders now require deposits of 10% or above.

If you can save a deposit of 20% you'll have more mortgage choice and be able to secure a lower interest rate on the loan.

If you decide to buy, try out the Times Money Mentor mortgage comparison tool.

Once you have secured your mortgage, make sure you remortgage when your fixed deal comes to an end. Unless you have a fixed rate mortgage deal, when the Bank of England decides to raise interest rates, your monthly payments will probably go up too.

Find out: When will interest rates rise?

Find mortgage deals

Search and compare mortgage deals.
It only takes a couple of minutes and no personal details are required to search.
Speak with a mortgage broker when you're ready.

Product information is provided on a non-advised basis. This means that no advice is given or implied and you are solely responsible for deciding whether the product is suitable for your needs.

Koodoo mortgage

Is it worth buying a house?

If you're still weighing up your options, ask yourself these questions:

Where do you see yourself in two years' time? If you want a flexible lifestyle to work in different places and travel for extended periods then it might be a good idea to wait to buy.
What makes you happy in life? Do you prize security over everything, or do you dislike being tied down?
Are you likely to inherit property later in life? If so, can home ownership wait while you put money into a pension, savings or invest?
Do you want to buy a home just because you think property prices will go up? If the answer is yes, it's probably not a good idea to buy because there are no guarantees that prices will rise.
Will you be able to afford the maintenance costs if something needs repairing?
How much disposable income would you have after paying mortgage repayments and other bills? Make sure you feel comfortable.
If not, investing or paying into a pension while renting might be the best bet idea until you have moved up the career ladder or saved a bigger deposit.
Do you know about the government schemes to help people buy properties? Make sure you know the support that's available to you which we outline here.

Find out more: Is now a good time to buy a house?

Is renting really a waste of money?

Some people argue that renting is a waste of money because you are effectively paying your landlord's mortgage and giving them a profit on top.

While it is true that you aren't building equity in a property, renting does have its advantages, as mentioned above.

Remember that your rent payments are giving you a roof over your head and you don't have to pay for maintenance costs either.

But it's important to make sure that you aren't paying too much rent, so it's worth checking what the going rate is among other similar properties in the area.

If you think you are being charged too much, have a conversation with your landlord to see if you can negotiate reduced rent.

What costs are involved with renting a house?

One big advantage of renting compared to buying is that you don't have to worry about legal and mortgage fees.

Things have also improved for renters since 2019 when a new law came into force which prohibits landlords and letting agents from charging most tenant fees. This includes admin, referencing and tenancy renewal fees.

Landlords and letting agents also have to cap the deposit at five weeks' rent.

This has saved tenants £113 on average according to campaign group Generation Rent.

But there are still some costs you need to consider before renting:

The deposit (the average deposit value was £1,025 in March 2021)
You will need to make sure you have the first month's instalment of rent
Don't forget any moving costs such as hiring a removal van
You might need to buy furniture and utensils for your new home too

If you're trying to save up to move out, here are some money-saving challenges you could try out.

We'd love to hear what you think about Times Money Mentor. Please contact us with any thoughts or suggestions.

Sign up to our newsletter

Receive regular articles and guides from our experts to help you make smarter financial decisions.