Renting or Buying a Home: Which is Better in the UK?
I have been toying with the question with mortgage interest rates now beginning to reduce and the prospect of my rent tenancy agreement coming up for renewal. Should I continue to rent or try to get a mortgage? The question of housing often leads to this crossroad: Do you rent or take the plunge and get a mortgage to buy? In the UK, this dilemma is particularly common, given the state of the
property market — it can feel like a high-stakes balancing act as house prices are so high.
Even rental prices are off putting and following Truss’ mini budget landlords have increased rents and have reached record highs in recent times. This spike prompts a serious question: Is getting a mortgage and owning a home now a pipe dream for the average person like me?
When it comes to getting a mortgage, there are stringent checks and restrictions by lenders. When trying to get on the mortgage ladder some might be seen as tough, but they're also there to prevent people from getting a mortgage which they may struggle to maintain in the long term and ultimately biting off more than they can chew.
So, is this caution a hidden blessing, or is it shutting the door on many potential homeowners?
Weighing the pros and cons in the UK
Renting in the UK offers flexibility, a major plus if you're not ready to settle down or if your job demands mobility. It's also easier on your wallet initially – no hefty down payments, just a deposit and monthly rent.
In a 2023 article, Landlord Vision highlighted the increasing popularity of renting among younger UK residents, citing the lower immediate financial burden as a key factor.
However, renting isn't without its downsides. Your monthly payments aren't contributing to any form of property investment. Plus, you're subject to the whims of landlords and potential rent hikes.
And let's not forget, you have limited freedom to make the place truly feel like your own.
On the flip side, buying a home in the UK is a significant investment in your future.
According to The Financial Times, homeownership is often viewed as a milestone of financial stability. You're building equity with each mortgage payment, and there's a sense of permanence and security that renting
doesn't provide.
Buying a home is a major commitment, many say a mortgage is the biggest financial commitment for most people in their lives. The initial financial outlay is substantial – we're talking about a down payment, mortgage fees, and other associated costs. Then there's the responsibility of maintenance and the risk of property value fluctuation.
Not to mention, getting a foot on the property ladder is becoming increasingly difficult, especially for first-time buyers in today's market.
Last year Skipton Building Society launched a 99% mortgage. And recently there have been rumours the government may offer the same. This will be a great help to many but also may be detrimental and just increase property prices further.
At the moment I am exploring the idea of a mortgage but matters begin to get slightly more complicated with the route in the UK.
For instance there are a number of options available:
Shared ownership mortgage scheme:
I've been exploring the Shared Ownership mortgage scheme as a way to step onto the property ladder, especially considering how tough the UK housing market is right now.
It's a pretty interesting option where you buy a part of a property – usually between 25% and 75% – and then pay rent on the rest, which is owned by a housing association. The biggest draw for me is the affordability; the deposit and mortgage needed are just for the portion I'd buy, making it more accessible.
Another aspect I like is the flexibility.
Over time, I can increase my share in the property through 'staircasing', eventually owning it outright. However, I'm also aware of the potential downsides. My equity growth is limited to the share I own, and if I decide to sell, it might be more complex since the housing association has rights to find a buyer first.
While it's often associated with first-time buyers, I learned it's not just
for them. And it's not limited to new builds, although those are more commonly offered. Considering the high property prices, this scheme seems like a smart way to get started with
Right to buy mortgage scheme:
I've also been looking into the Right to Buy mortgage scheme, which is quite an interesting path to homeownership, particularly for people like me who are currently living in council
housing. This scheme allows tenants in council properties to buy their home at a discounted price. The discount depends on factors like the length of time I've been a tenant, the type of property, and its location.
One of the big benefits of Right to Buy for me is the significant discount on the market value of the property, which makes buying a home more affordable.
Plus, becoming a homeowner means I can invest in my property, potentially increasing its value over time.
However, there are some negatives too. If I sell the property within a certain period, I might have to repay some or all of the discount. Also, I've realized that if my financial circumstances change, I could struggle with mortgage repayments, which is a risk.
Right to Buy is specifically designed for current council tenants, so it's not an option for everyone. First-time buyers who aren't in council housing can't access this scheme. And it's not limited to new builds; it applies to the council property you're living in, regardless of its age.
As I weigh my options, I see Right to Buy as a potentially great opportunity to own my home under more
favorable conditions. However, I'm also cautious about the responsibilities and risks that come with taking out a mortgage and owning a property.
First Home mortgage scheme:
The First Home mortgage scheme is quite an eye-opener for someone like me, looking to break into the housing market for the first time. This scheme is tailored specifically for first-time buyers, offering new build homes
at a discount of at least 30% off the market price. This discount is a game-changer, making properties that were previously out of my budget suddenly attainable.
The big plus here is the affordability.
With this scheme, the price of the new build is significantly reduced, which means I'd need a smaller mortgage and deposit. This is a massive relief, considering how steep property prices can
be. It's also a great stepping stone to owning a property in areas where I might not otherwise afford to buy.
However, I'm also aware of some drawbacks. The scheme is limited to new builds, so my choices are restricted to these types of properties. Also, there's a cap on the price of homes available under this scheme, which varies depending on the region.
This means that in some high-cost areas, the options might still be limited.
Moreover, the discount stays with the property even when I sell it. This means the next buyer, who must also be a first-time buyer, gets the same discount, potentially limiting the profit I can make on the sale.
As I ponder over this, the First Home mortgage scheme seems like a potentially great deal for a
first-time buyer, offering an affordable path to owning a new build. However, I'm keeping in mind the limitations regarding property types and future resale. It's all about balancing the immediate benefits of getting onto the property ladder with the long-term considerations of property investment.
Deposit Unlock mortgage scheme:
The Deposit Unlock mortgage scheme is another intriguing one, especially as I'm navigating the challenges of saving for a hefty deposit. This scheme is designed to help homebuyers purchase a new build with a significantly lower deposit – sometimes as little as 5%. It's not just for first-time buyers but also for those moving up the property ladder, which adds to its appeal.
The standout benefit of Deposit Unlock is the lower deposit requirement. It's a breath of fresh air knowing I don't have to save up a massive 10% or 15% of the property's value to secure a mortgage. This scheme makes the idea of buying a new build home far more accessible and less daunting.
However, there are some potential downsides to consider.
The scheme is limited to new builds, which means my options are restricted to these properties. I'm also aware that with a smaller deposit, I might end up with a larger mortgage and potentially higher monthly repayments. Plus, there's always the concern about new builds potentially losing value in the initial years after purchase.
As I weigh my options, Deposit Unlock certainly seems like a viable route for me to get a foot on the property ladder, especially given my current savings. The lower deposit requirement is a huge advantage, but I'm also balancing this with the long-term financial commitment and the specifics of investing in a new build property. It's about finding the right balance between what's feasible now and
what makes sense for my future.
What’s your play in today’s housing game?
In the UK, with house prices what they are, is renting the more sensible play for most of us? Or, if you’ve got the means, should you dive into buying, despite the risks and the responsibility it brings?
This isn’t just a financial decision; it’s about your lifestyle, your future, and how you see yourself in
the grand scheme of things.
It's worth pondering where you stand in this global conversation. Are you leaning towards the flexibility and lower upfront cost of renting, or does the stability and long-term investment of buying appeal more to you? In a world where housing markets are as dynamic as ever, the real question might be: How do you define 'home'?
What do you think is the best option?
Continue to rent
Try to buy with 99% mortgage
Shared ownership mortgage scheme
Right to buy mortgage scheme -
First Home mortgage scheme -
Deposit Unlock mortgage scheme
What do you think is the best option?
