- Learn the pros and cons of renting vs buying a house.
- Is renting a house a good idea, or is renting dead money?
The question is simple the answer is quite complex. You have to consider all other financial commitments you may have as well as considering your future plans. This article will try to define the pros and cons of taking a mortgage or choosing to save to buy in a bid to help you make the right decision. Cashfloat are committed to helping consumers with their financial decisions, aiming for consumers to be able to make the correct choices that will enable their financial stability.
Is Renting Better than Buying Immediately?
Why renting is better whilst you save to buy a house:
- Renting a home while you save up to buy gives you more flexibility. It will allow you to rent in areas that you are consider buying in to determine if it is practical for you in terms of getting to work, shopping or schools. If you decide the area is not practical or you could not afford to buy, renting will allow you to end the agreement after a short period of time without any financial implications.
- Unlike buying a home, typically, a proprietor will request you pay the first and last months’ rent upfront, or sometimes, it is one month’s rent and a bond that you will get back at the end of the agreement. This is financially beneficial to you, especially if you have started saving for a deposit as you are not expected to find large amounts of money upfront. There may be other costs associated with renting but overall these are not as hefty as a deposit for a mortgage.
- Renting should allow you to be more financially secure and aware and you can consider investing your money elsewhere while you save for your deposit. Just remember to look at the interest rates to ensure you are getting the best for your investment.
- Renting will allow you to create a credit rating or improve it if you have a bad one, and this will help improve your chances of qualifying for a mortgage when the time comes. Although your credit score is not a financial gain, it will help your financial status.
- Renting a property normally only requires you to have contents insurance as the building should be covered by the landlords’ insurance, therefore, you will not only save money on your insurance but should anything go wrong with the property you will not be expected to pay to have it repaired. This means your money is safe and you don’t have to eat into your savings.
UK Average monthly buying costs and rental payments
| Year | Average Monthly Buying Costs | Average Monthly Rental Costs |
| June 2008 | £1,072 | £720 |
| June 2009 | £775 | £697 |
| June 2010 | £676 | £657 |
| June 2011 | £668 | £693 |
| June 2012 | £650 | £728 |
| June 2013 | £672 | £745 |
| Halifax, Birmingham Midshires & ONS. Costs are for 12 months to June |
Is renting a Bad Idea Whilst you Save to Buy a House?
Do you have other financial commitments?
Renting may be an option if you have other financial commitments that you need to resolve prior to buying, for example debts, credit cards. Although you may not save as much while paying these off, you need to consider that while you are renting for possibly a cheaper monthly cost than a mortgage you can clear your debts off and be more financially secure with your home. A mortgage is not as easy to get out of if your financial circumstances change.
Bills are a part of any home whether you rent or buy and you may find that you are not saving as much as you would have liked. Research before you rent, some proprietors may have a higher rent but this may include your utilities so you have to consider what is going to be more financially advantageous to you and your circumstances.
The disadvantages of renting:
- Renting somewhere will help you whilst you save to buy, only if it is a small amount but if you invest your money wisely it can work for you. However, you need to consider that while renting may help you save and create a credit history and even help clear your debts, you have no control over your rental payments. You will to a degree, but the proprietor may decide to change the rent by giving you notice and you may have no alternatives but to pay it.
- It’s not always easy to find rented accommodation in your budget and the area you want.
- Some people see renting as dead money; you are paying for something that will not be financially profitable to you, when the rental period ends or you leave you get nothing back except your deposit.
Should you Buy a House Rather than Rent First?
Buying a house has the following advantages.
- Buying your own home will increase your equity and as you pay your mortgage off the ownership of your home increases. Also, through time if you want to make a major purchase or build an extension you have the ability to re-mortgage your home to finance this, and sometimes you can obtain a better rate than you currently have.
- It’s your home, and you can decorate it how you like. Unlike renting there are no restrictions on how you decorate your home, or even add to it if your circumstances change and you need more space. You have control over these decisions. Pick what colour you want, choose what furniture to have, sometimes it’s these little things that can give you a sense of freedom and control.
- In your home you will have bills to pay and maintenance to keep on top of, but unlike renting where you may be restricted, you can shop around. You can choose the utility companies and change to get the better deals. You can choose to keep on top of the maintenance yourself or employ someone to do this for you. All of these decisions can save you money,a nd may even avoid you having to turn to apply for a pay day loan.
What to be Aware of When you Save to Buy a House
While buying your home may seem like a good option you should not treat your home as an investment. Property markets and prices fluctuate and you should be aware of this. Your home may seem like a good investment but you need to be vigilant and keep up to date with not only your own finances but the surrounding areas, changes in neighbouring areas could have a negative impact on property prices in your area as well as good.
Look at your long-term goals when considering to buy or save to buy a house, as well as your current financial situation. These things will help you make an informed decision. You also need to take into consideration your employment status. If the economy changes, how safe is your job? How will the change affect you financially? Will you still be able to pay the mortgage, or is save to buy a better option?
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