Renting vs buying: which is most rewarding?

It is undoubtedly ingrained in the British psyche that buying your own home is a life goal. Of all the property in the UK, 63% is owner-occupied. But just across the water there is a very different picture. In Germany, the strongest economy in the eurozone, the majority of people rent their home. Only 41% of Germans own property.

So, are we wrong to think buying is the be all and end all? Would we be better off financially if we stopped struggling for a deposit on a property and settled into life as a renter?

Here, we weigh up the costs of buying versus renting an average first-time buyer home. The average value of such a property is £203,000, according to data from the Office for National Statistics.

The upfront barrier to buying

Firstly, let’s look at the upfront costs. Signing up for a rental home isn’t cheap. Our research showed that you’ll need £1,080 on average to secure your rental property. That’s made up of a one-month deposit of £930, and letting fees of up to £150.

But to get on to the housing ladder and buy that £203,000 home you’ll need to find a whopping £23,925. That includes a £20,300 deposit, £500 Homebuyer’s report, £700 survey fee, £925 in legal fees and £1,500 in stamp duty.

Clearly, when it comes to upfront costs you are better off renting. “In many towns and cities, especially around London, property prices are extremely high – for most people too high to even consider anything but renting,” says Adam Male, founder of the online estate agent “With more and more people choosing to rent, canny landlords are growing wise to the increasing demand, and rental prices are rising steadily.

“Rather than this driving people out of their rented accommodation and into a mortgage broker’s office, this phenomenon is likely to create further growth in people staying in rented accommodation, because higher rents mean they are unable to save the upfront costs needed to buy.”

“Mortgage regulation and rising house prices have combined to make home ownership more difficult to access,” adds Neal Hudson, associate director of Savills residential research. But money isn’t the only reason people choose to rent rather than buy: a Savills survey found that 24% of tenants rent “because it is less hassle and they like the flexibility”, says Hudson.

Another benefit of renting is you don’t have to cough up if things go wrong with the property. If the boiler breaks down, or if the roof needs repairing, all a tenant needs to do is to call their landlord who has the responsibility to arrange and pay for repairs

So, surely, in the longer term renting is cheaper too. After all, tenants only have to hand over rent, whereas home owners are faced with a whole host of monthly costs. Surprisingly, our research has found that annual costs are lower for home owners.

Cheaper to buy in the long term

Rent has soared in recent years, with the average tenant now paying £762 per calendar month – an increase of almost 5% in just a year, according to the HomeLet Rental Index. Let’s take our average first- time buyer home worth £203,000 and look at renting it.

Average yields for landlords are around 5.5% – although they vary hugely around the country, from 3% in London to 8% in some other areas. That means that the average rent for our house would be £930 a month. Once you have factored in council tax and contents insurance, a tenant in that house would have annual costs of £12,334.

By contrast, mortgage rates are at a record low, with most first-time buyers paying 3.27% interest on their mortgage, according to This means our example of someone in a £203,000 home with a 90% mortgage is paying £892 a month (assuming they have a £500 mortgage fee).

However, as a home owner you also have additional costs in the form of maintenance and buildings insurance. This means that, over a year, owning that average home would cost £12,639 – just over £300 more than if you rented it.

That, however, is including capital repayments in the calculations. Given those repayments mean after 25 years you will own a significant financial asset, whereas renters won’t, we’re going to strip them out.

Instead, we’re going to compare rent versus the cost of the loan for the house. By doing so, it shows that without capital repayments the home owner is paying out £7,910 a year to live in and maintain their home – that is £4,423 less than the person who is renting the same property.

“With rental demand – and therefore rents – very high in many places, and mortgages at record lows, it’s little surprise that many people find buying actually cheaper month to month,” says Peter Gettins, product manager at mortgage broker London & Country Mortgages.

Admittedly, at the moment home owners are enjoying astonishingly low interest rates on their mortgages. Rates would only have to rise to 5.7% before renting would be cheaper than home ownership. But that assumes that rents wouldn’t rise too, and as landlords would need to cover higher buy-to-let mortgage rates, that is unlikely.

Big financial benefits of owning your home

In the long term, home ownership has numerous benefits. Homeowners get “the longer-term financial benefit of gradually building a significant asset that should over time allow them to trade up and ultimately leave a benefit to children”, says Gettins.

“Aside from the financial questions, the personal and emotional aspect is just as important,” he adds. “Renting carries no long-term security for the tenant, with most agreements only lasting six to 12 months, and with no guarantees after that.

“And many tenants may be constrained in the character of their home – in terms of décor, pets, perhaps even furnishings. As a home owner all these things are under your control. Your home is yours, barring disaster, for as long as you want to be there, and can be shaped to your own desires. It brings stability and the ability to plan with confidence that tenants rarely enjoy.”

Home ownership can also make a huge difference to your finances in later life. The problem with renting is you will always have to pay rent. Whereas with a mortgage you should eventually pay it off, freeing yourself from monthly housing costs – hopefully before you face a drop in income when you retire.

In retirement this can make a huge difference as your pension will not have to cover housing. That could leave you £800 a month better off, based on current rental rates. You also give yourself the option of releasing equity from your home to help fund your retirement.

“Owning your home when you’re in retirement gives you far greater security than renting, in terms of where you live and controlling your ongoing monthly costs,” says Patrick Connolly, a certified financial planner for independent financial adviser Chase de Vere.

“These factors are both incredibly important for most people when they’ve stopped working.” Over the long term, owning your own home makes a huge difference to your finances. You will have built up a large financial asset and will eventually have no outgoing housing costs – not to mention the fact that you’ve saved yourself thousands of pounds in rent.