Is it better to rent or invest money into buying a property?

The past decade has seen a significant shift in attitudes towards home ownership. The average age of the first-time homebuyer in the UK is now 34, up from 28 a little over a decade ago. Meanwhile, demand for rental property has surged, with many effectively priced out of the housing market due to skyrocketing house prices, high cost of living, and low wage growth.

In response, the UK government has introduced a number of schemes to help first-time buyers onto the property ladder such as Help To Buy and, more recently, 95% mortgages. But do the benefits of buying a property outweigh those of renting?

What are the benefits of renting property over buying?

There’s no denying that the shift towards renting has been influenced by the economic climate. The average house price soared by £20,000 over the past year and many prospective first-time buyers are simply being priced out.

But beyond finances, lifestyle trends have also contributed to the surge in rental demand. Not everyone is opting for rental property due to an inability to buy. In some instances it’s by choice, marking a stark change in attitudes towards renting, which for a long time held a stigma of being “dead money”.

City centre living has become more desirable

Market trends indicate that demand for city centre living is on the rise, particularly among young professionals who want to live in close proximity to amenities like restaurants, bars, and transport links. It’s no secret that properties in city centres often have the most expensive price tags attached to them, and while this is also reflected in rental prices, renting is almost always the more affordable option.

Flexibility and freedom are highly valued

Not being tied to a long-term mortgage plan makes it easier to move locations more easily. This freedom is highly valued by millennials who, as a generation, tend to move jobs more than previous generations. If someone secures a dream job that’s far from their current home, it’s much easier to find a new place to rent close to the new workplace than it is to sell a home and buy a new one.

Of course, if the existing rental agreement still has some time to run, break clauses will need to be invoked or replacement tenants must be found, but this is generally less hassle than the sale and purchase of a property.

Fewer upfront costs than buying

Buying a home often comes with a plethora of costs. First-time buyers often spend years saving up money for their initial deposit, only to find they need to save a good chunk more to afford things like broker fees, mortgage fees, homebuyer surveys and legal fees, and that’s before considering insurance and moving costs. These can very quickly add on another £10,000 to the overall cost of buying.

Of course, there are additional costs associated with renting. When moving into a new rental property, landlords will often demand 1 to 2 months rent up front, as well as a tenancy deposit. But these costs will generally be far lower than those that come with buying.

What are the benefits of owning property?

Despite the lifestyle benefits of renting, many would still argue that buying a home offers better value in the long run.

Equity in a tangible asset

Rather than monthly payments going straight into a landlord’s pocket, when you own a home monthly mortgage repayments go towards building equity in a home. The more equity a homeowner has, the more of the property they own outright. By the time their mortgage term is over, they’ll own the entire property and can, in theory, do whatever they’d like with it. Buying a home should therefore be viewed just as much as an investment as a place to live.

Ability to unlock extra cash

Having equity in property also comes with other financial advantages. The more equity a homeowner has, the more credit they can access in the event of an emergency, financial difficulty, or to fund other projects. For example, a second charge mortgage is a way of using equity to borrow money. As explained by Loan.co.uk, this type of secured loan “works by letting you use the percentage of the property you own outright as collateral to borrow more money”. As the lender has the security of the home as collateral (in the event that the homeowner can’t repay), you can typically borrow much more than with a personal loan.

Potential to generate profit

If a homeowner decides to sell their home later down the line, they may be able to generate a profit, allowing them to trade up on their next move. Property value is largely influenced by market conditions, but can also be enhanced by making improvements such as an extension or a loft conversion to create extra living space. Increasing the value of your home creates more equity, so any gains in property value will ultimately end up in the homeowner’s pocket.

Freedom to customise the property

One of the drawbacks of renting is that the tenant is limited in terms of making the place their own. Sure, small tweaks and accent changes can be made, but any significant changes to the property cannot be made without the landlord’s approval. Plus, any house or garden projects undertaken by a tenant are ultimately investments that are lost as soon as they move. In contrast, homeowners have the full liberty to make the home their own, making any changes that they wish.

Will more people rent or buy in the future?

The UK rental market is forecast to continue growing. Based on current rates, tenants privately renting are expected to make up 50.7% of the housing market by 2039. Research has also revealed that more than half of adults under the age of 40 are expected to be renting privately-owned accommodation by 2025, while one third of young adults believe they will never buy a house.

The long term financial benefits of owning property are still present. Getting on the property ladder remains a very good way of helping to secure future financial wellbeing. But the decision doesn’t just come down to money, it’s also emotional and influenced by the type of lifestyle people want to lead. Ultimately, the decision to buy or rent rests on an individual’s personal circumstances and working out which option would provide the most benefit to them.