House prices and rents are both rising fast in many parts of the UK. We consider whether house-hunters should favour one tenure over another
Stepping on to the property ladder is seen almost as a rite of passage in the UK, but with house prices increasing, mortgage rules tightening and the prospect of interest rates creeping up, investing in your first home can be an incredibly expensive experience, even with the aid of government schemes such as Help to Buy.
With the average age of first-time buyers now 36, more and more people are staying in the private rental sector for longer, although concerns persist about rogue landlords, poor conditions and the dead money tenants spend on rent.
The decision of whether to buy or rent can also depend on the type of person you are. Some people dream of white picket fences and a garden for the kids to play in, while others baulk at the idea of a three-bedroom semi in commuterville. So whether you believe that home is wherever you lay your hat or where the heart is, here we weigh up the pros and cons of buying and renting.
Buying
Long-term financial planning
Buying a home could be the best investment you ever make, with property more likely to produce a significant long-term yield than many other investment opportunities. If your home increases in value, you can use its equity to purchase a bigger home and move up the ladder, or downsize and keep your profit. Purchasing property is often central to retirement planning - in retirement you will have a lower income, and a fully paid mortgage removes a significant monthly outgoing.
Stability
A home will be the most expensive thing you ever buy, and purchasing your first property is often seen as a landmark in your adult life. Some of the most appealing factors of purchasing a home are emotional. Buying a home can indicate a readiness to settle down and have children or can be a symbol of financial independence.
Freedom
Buying your own home allows you the freedom to change it as you see fit. Whether it's painting the bedroom a different colour, getting a new kitchen or adding a conservatory, buying means you will keep the yields from any improvements you make and can stamp your own personality on the property.
Community
Purchasing a new home allows you to become part of the local community and create long-lasting friendships. Your neighbours might have children the same age as yours or take the same route on their commute to work.
Renting
Freedom
If you work on a contract basis and move between areas, aren't ready to settle down, or simply want to road-test a neighbourhood before buying, renting allows you to up sticks and move on with just a couple of months written notice. A standard tenancy agreement is usually 12 months, but short-term contracts allow even greater freedom.
Maintainance
If the boiler goes bang in the middle of the night, clearing up the mess and purchasing a new one isn't your responsibility. When you buy a property you are solely responsible for its upkeep and maintenance, but when renting all reasonable damage, defects and malfunctions are covered by your landlord. Do remember to take out contents insurance on your belongings, though, as these aren't covered by the landlord's insurance.
Location
Renting allows people to live in areas where they can't afford to purchase a home. This is especially the case in big cities, where buying often means moving out to a commuter town and facing a long journey in to work and the prospect of being away from the action. The lifestyle element of renting can be particularly important to younger tenants.
Budgeting
When renting, you pay a fixed monthly amount that does not change for the duration of your tenancy agreement. Your landlord may periodically increase your rent between agreements, but tenants are able to avoid the pitfalls of market conditions and the possibility of negative equity that come with homeownership.
Less Risk
If your circumstances change over time, there are fewer legal and emotional complications involved if you are renting a property. Buying a home is a huge commitment and requires considerable thought and long-term planning.
Expert Opinion
Vivienne Harris, managing director at Heathgate estate agents
“Most of our buyers take a view that property is a good investment in the long term. So if they can cobble together a large enough deposit, especially in recent years with interest rates being so low, they would rather step onto the property ladder and see if they can generate some capital for themselves. Intrinsically, British people have always aspired to owning their own homes and there is a sense that an Englishman’s home is his castle.
“As for the psyche about owning rather than renting, I think this is down to a concern that a landlord may require possession at some future date and people find it unsettling to feel that they are not free to modernise/redecorate/ improve the property if they will only remain there on a temporary basis.”
Kirit Lakhani, co-owner of Charles Derby Estates
"A mortgage is a huge commitment and ties you down in more ways than one. When the next substantial mortgage rate increase happens, some homeowners may find it very difficult to make ends meet. Renting can be advantageous to those who are on a low wage, as they could move to an area where rents are lower and thereby reduce their cost of living. Homeowners tied to a mortgage can neither move nor ignore their long-term financial commitment.
"Improving and maintaining a property is also a huge task that requires commitment, and some younger people are not ready for this. Historically, property ownership has been perceived as a milestone in one's journey of life. However, in this technological age, younger generations have defied the traditional belief of property being the best way of making money."