Time to rent not buy?
Renting often gets a bad reputation in the UK, where homeownership has long been a cultural norm. Most people aim to buy a home with a mortgage and pay it off over their working lives. However, with soaring house prices and high mortgage rates unlikely to return to historic lows, renting is increasingly becoming a viable and, in some cases, more beneficial option for many.
Nick Woodward, Director of Lettings at Essential Living, observes, “Renting tends to have a more negative reputation in Britain compared to other European countries where renting is more common and socially accepted. In countries like Germany and Switzerland, long-term renting is standard practice and not seen as inferior to homeownership. This cultural difference is due to various historical, economic, and policy factors that have shaped housing markets differently across Europe.”
Hidden Costs of Homeownership
When buying a home, many people overlook several additional costs such as maintenance, building insurance, and service charges. Furthermore, life circumstances can change—jobs may relocate, and families can grow. Renting provides a level of flexibility that homeownership does not.
Rising Mortgage Rates
With mortgage rates significantly higher than their historic lows, renting can be more economical, especially for those with a small loan-to-value ratio. Research by Hamptons in May 2024 found that buyers with a 5% deposit face paying £300 more per month in mortgage repayments than if they continued renting. In London, servicing a mortgage costs the average tenant an additional £775 per month or £9,300 a year.
The Bank of England data shows the average mortgage rate for a buyer with a 5% deposit currently stands at 6.1%. Hamptons estimates that this rate would need to fall to around 4.2% to make renting and buying with a 5% deposit cost similar. In London, the rate would need to drop to 3.6% to equalize the costs.
“Despite rental growth settling at around 6% year-on-year, renting remains more cost-effective than buying for most households across the country. High mortgage rates have squeezed buyers with small deposits out of the market, forcing more households to rent for longer,” says Aneisha Beveridge of Hamptons Research.
Stamp Duty and Its Impact
While stamp duty land tax (SDLT) isn’t payable on properties under £250,000, those buying in the South East or in cities are unlikely to avoid it. Stamp duty can be significant, particularly for £1m+ homes or investment properties requiring an additional 3% rate.
“With high rates of SDLT for top-end properties, it can be cheaper for people to rent if they are uncertain of their future movements or requirements,” says Sabaya Verger, partner and lettings advisor at Tedworth Property. “Buyers used to be more willing to purchase and then sell if they needed to upsize or move, but now with SDLT up to 15%, many choose to rent until their requirements become more certain.”
Maintenance Costs
One advantage of renting is that maintenance costs fall under the landlord’s responsibility. “If your shower starts trickling out cold water or your oven stops working, it’s your responsibility to let the landlord know, but it’s not for you to expense,” explains Woodward. “This reduces stress, as you don’t need to budget for maintenance costs. If you own property, any issues that arise are your responsibility, potentially causing significant financial strain.”
Flexibility and Convenience
Renting offers the flexibility to try out different areas or find temporary accommodation if your work is only for a set period. “In prime central London, most tenants choose to rent, not because of affordability, but for convenience,” says Verger. “Many tenants are from overseas and are in London temporarily for work or education. They often rent before deciding whether or not to buy.”
Marc Schneiderman, director of Arlington Residential, notes, “Many of our tenants in St John’s Wood have the financial means to purchase but choose not to because they are not UK nationals and don’t know how long they will stay. Additionally, some believe prices will fall and renting offers better flexibility.”
Renting often allows tenants to live in nicer, more centrally located apartments than they could afford to buy. “This accessibility means renters can enjoy better amenities and lifestyle benefits, such as proximity to work, entertainment, and cultural activities,” says Woodward.
Smaller Deposits and Improved Rights
While both renting and buying require deposits, the amounts are vastly different. “When you buy a home, most lenders ask for at least a 10% deposit. In comparison, a tenancy deposit is usually around five weeks’ rent, which is much less,” Woodward explains.
Recent government efforts have also improved renters’ rights, such as the right to keep pets and better deposit protection. The likely abolition of Section 21 notices under a Labour government could further enhance tenant security, making renting more appealing.
Access to Amenities and Fewer Fees
Service charges, often significant in high-end properties, are the landlord’s responsibility and tax-deductible. “Tenants benefit from amenities like pools, gyms, and porters without additional costs,” says Verger. “These facilities are included in the rent, offering savings compared to owning the property and paying the service charges.”
Additionally, buying or selling property incurs several fees, including estate agents’ and solicitors’ fees, which renters avoid. “Selling a home is more complicated and costly than cancelling a rental contract,” adds Woodward.
Property owners must also obtain building insurance, which can be expensive, especially for high-value properties.