Should I buy a house? When to rent vs buy

Are you in a position to buy?

If you’re Googling ‘rent vs buy', a good place to start is to look at your financial situation. You’ll need a deposit equivalent to at least 5% of the total property price (although there are some low deposit options out there), but to unlock the best interest rates, aim for 20% if you can. 

Your mortgage will then make up the remaining amount. Your salary, or combined salaries if you’re buying with someone else, will need to be high enough to be given the mortgage you need to get to the full property price.

Typically, you can borrow between 4-4.5x your household income for a mortgage, but this will be influenced by factors like your credit score, dependents, and expenses. This is because mortgage lenders are bound by regulations to check that you can afford the mortgage if interest rates rise. 

Read more: How much do I need for a house deposit?

Struggling with affordability? Discover how you could boost your buying budget through Tembo. Get started here.

You’ll need a good credit score, especially if you only have a small deposit. This means you need to have a history of responsibly managing your debts, no missed payments, and a track record of being registered on the voter’s roll. 

Having no debts at all can damage your credit score, but having too much debt will reduce the loan amount the mortgage lender will offer. If you have a high amount of personal debt, a low credit score or a small deposit, it’s a good idea to rent until you’re mortgage-ready.

Confused as to why credit matters when buying a home? Check out our blog.

Are your current circumstances temporary or permanent?

One of the biggest selling points of renting is flexibility. You can get a tenancy for as short as six months and when this is up, you can give notice and move if it’s not right for you. 

That makes renting a great way to try out a new area without fully committing to living there or even trying out living with your partner before you buy a home together. 

If you’ve moved to a new area for work but plan to move back home after a few years, renting is quicker and less hassle than buying. In the short term, it costs less because you won’t have to pay legal fees and estate agent costs when you come to sell.

Renting is often a handy stopgap for recent divorcees who are selling the marital home or getting back on their feet, for example.

But with flexibility also comes insecurity. Your landlord can choose to hike your rent when your tenancy comes up for renewal or they can refuse to renew your tenancy at all which means you have to move out.  

Investing in your own future

If you’re ready to put down roots of your own, and you’re financially fit, buying a home makes more sense than renting over the long term because you’re investing in your own future, not your landlord's.

If you’re starting a family, you have peace of mind that you can live in the property for as long as you choose, not as long as the landlord allows it. You have the freedom to renovate, decorate and improve your home: a luxury renters do not have.

And if you want security over your monthly payments, you can fix your mortgage rate for five, seven, or even 10 years.  

The sooner you buy, the sooner you could be mortgage-free, which is a huge advantage when you retire and are relying on pension income to support yourself. 

And you benefit from rising house prices, which means your home is increasing in value while your debt is shrinking. The equity you build up, which is the difference between the value of your debt and the value of your home, can be used to buy a bigger house in the future. Or you can use your property wealth to support you in retirement or pass it on to your kids as a living inheritance to help them get on the property ladder.

So to answer the question, ‘is buying better than renting in the long-term?’, a recent report that compared the costs of buying and renting over a 30 year period ruled categorically yes. 

It found that renting costs over £300,000 more than owning over three decades. Homeowners would also benefit from building up equity of close to £210,000.

Yes, homeownership comes with more responsibility, but is it better to rent or buy a house in the long-term? It’s clear buying a home pays off.