Renting or buying – which is right for you?

Owning your own home is a goal for many people, but with one in three people aged 50 and over now renting their homes, it’s clear that there are pros and cons for both sides.

The rise in renting for the over 50s may be down to an increase in divorce for this age range, otherwise known as ‘silver splitters’, with many people not being able to afford to buy their own home after their separation.

Whatever the reason, if you are currently weighing up whether to rent or buy, here are some things to consider.

Should you rent or buy a property?

Deciding whether to rent or buy your next home is a very personal decision and what is right for one person may not be right for you. Both options have a number of benefits and disadvantages. Here are some questions that you should ask yourself to help you work out which route is best for you:

What does your financial future look like if you buy rather than rent?

Your living situation obviously makes a big difference to your finances, not just now but in the future, so it’s important to consider how you might pay for your home over the coming years and after you retire. Having a mortgage is usually cheaper than renting, with the average UK mortgage costing about £670 a month versus the average rental cost of £830 a month. However, getting a mortgage when you’re over 50 isn’t always easy. You can find out more about the options that might be available to you in our article Mortgages if you’re over 50: what you need to know.

Cheaper still is living mortgage-free, so if you are in a position to buy and potentially pay off your mortgage before you retire, perhaps by overpaying your mortgage each month, then buying could reduce your living costs later on. Learn more about the effects overpaying can have on your mortgage in our article Should I consider overpaying my mortgage?

If you aren’t able to pay off your mortgage before you stop work, it’s worth thinking about how you will cover your monthly repayments once you retire. Do you have a pension pot that will cover these costs or do you think you will need to keep working? If you have a workplace pension, it is worth paying into it to try and boost the amount of money you will have at retirement?

What are your priorities over the next few years?

A mortgage is a big financial commitment, so you need to be sure that it’s the right thing for you. It’s worth asking yourself what you want your life to look like over the coming years. Is making somewhere your permanent home a priority or would you like more flexibility? Do you want to use your savings now to put down a deposit so you can buy a home, or keep a nest egg for the future?

Renting could provide you with more flexibility as you won’t have many of the costs associated with buying, such as Stamp Duty or mortgage arrangement fees, and you’ll also be able to rent short-term if you want to, making it easier for you to move on if you’re not happy in your home. Buying a property and getting a mortgage can give you more certainty as you’ll usually know exactly what your costs are for a set period of time (depending on the type of mortgage you choose), which can make it easier to budget.

Can you afford the costs of buying a home?

While many people can afford the monthly mortgage payments, and in many cases these will be cheaper than the rent they pay, there are several other costs to consider when buying a house which include:

  • A deposit – when you apply for a mortgage, lenders will require you to put down a deposit of anything between 5% and 20% of the property value. Currently, because of the government backed Mortgage Guarantee Scheme, there are several lenders offering mortgages with only 5% deposits. You can read more about this scheme in our article How does the Mortgage Guarantee Scheme work?

  • Home survey costs – Before buying a home it’s a good idea to have a survey done so you are aware of anything that needs repairing or might affect the value of the property. Depending on the kind of survey you opt for and the size and age of the property you’re buying, this could cost anywhere from £150 – £1,500.

  • Stamp Duty – This is a tax you pay when purchasing a residential property in England or Northern Ireland over the threshold price (if you live in Scotland you might need to pay Land and Buildings Transaction Tax or Land Transaction Tax if you live in Wales). There is currently a stamp duty holiday (until 30th June 2021) on any main property you purchase up to the value of £500,000. Stamp duty has different brackets depending on the value of the property, you can find out more information in our article Stamp duty explained.

  • Legal costs – when you buy a property, there are a number of legal processes to go through, which will usually be carried out by a conveyancing solicitor. Solicitors can charge anything between £850 – £1,500 or more to help with your property purchase, depending on the complexity of your situation.

These costs can quickly mount up, so it’s important to consider them all before making your offer to make sure you can afford them.

What are the pros and cons of renting or buying?

If you’re still not sure whether to rent or buy a home, we’ve put together this table which outlines some of the general pros and cons of each option: 

Benefits of owningBenefits of renting
  • Once you pay off your mortgage, your living costs will reduce considerably
  • You might make money if your home increases in value
  • You can make changes and improvements to your home without seeking approval
  • Mortgages can be cheaper than renting
  • Low commitment and greater flexibility – often there are shorter contract terms available, making it easier to move around
  • Renting might mean you can afford to live somewhere you could not afford to buy – while the monthly costs may be similar, it is easier to rent in a sought after area than it is to buy
  • You may not have to sort out furnishings – some properties will come fully furnished, so you don’t have to worry about buying anything or storing it when you move
  • Usually, you won’t be responsible for maintenance costs or organisation of services
  • Bills may be included in your monthly fees, so you only need to worry about setting up a single payment for all your living costs.
Possible negatives of owningPossible negatives of renting
  • Long term commitment – Mortgages are often have 25-year terms and if you’re tied into a particular introductory deal, there may be hefty penalties to pay if you want to redeem your mortgage early
  • Changing interest rates – Mortgage rates are currently very low, but if they rise in future and you’re on a variable rate, your payments could increase substantially
  • Fluctuating property values – If the market isn’t great when you want to sell, you may struggle to sell your home at the price you want, so it’s possible you could lose money. There’s also a risk of negative equity if house prices fall, where you end up owing more than the property is actually worth
  • You are responsible for maintenance costs
  • Your money is tied up in your home, and unless you consider equity release you won’t be able to access your money unless you sell
  • If you buy a home with someone and you separate, dividing the home can be complicated and expensive
  • The legal and other costs associated with buying are more expensive than renting
  • You may have additional fees applied depending on the type of property you buy – i.e. a leasehold flat may have service fees, or housing association costs
  • Getting a mortgage can be tricky if you are self-employed or work seasonally
  • Uncertainty of rates – rental agreements will most commonly ask you to sign up for 12 months – after this period the amount your landlord asks you to pay can increase, and it’s not in your control
  • Often you will not be allowed to change the appearance of your property – i.e. painting, decorating etc
  • Pets are often not allowed, unless agreed with your landlord
  • You are paying into your landlord’s pocket rather than building your own equity
  • Although many landlords are very good at maintaining their properties, not all are, so you may face lengthy delays if any repairs or property maintenance needs carrying out

Finally…

There’s no ‘one size fits all’ answer to the question whether renting or buying is best, as the answer will depend entirely on your individual circumstances. Some people have a great experience as tenants, whereas others don’t and wish they were in a position to buy. Equally, many homeowners might feel their mortgage is a major financial burden, or that they’re trapped in a property they’ve bought – or they may be lucky enough to own their dream home.

If you think you would like to buy, and want to speak to a mortgage adviser about your circumstances, we’ve chosen to partner with Fluent Mortgages to offer fee-free advice on the various options that may be available to you based on your individual circumstances. You can request a free, no obligation callback here.

Are you a long-term renter who has just bought their first home, or are you a previous homeowner that’s just started renting? If so, we’d be interested in hearing from you. You can join the money conversation on the Rest Less community or leave a comment below.

Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.

See deals from the whole of the market to find out what you could save. Or, if you’d like to talk to someone, you can get high quality, fee-free mortgage advice from Fluent – our experienced broker partner. Call 01204 899582 or request a callback below.

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