Is it better to buy or rent in the current market? Photo: Alamy/PA
For a lot of people, the question of renting or buying isn’t something they need to give any thought to – as skyrocketing home prices mean renting is their only option for the foreseeable future.
However, for those who are in the fortunate position to be able to consider buying, the rapid rise in mortgage rates has raised a question that potential buyers have not faced for years – is it really worth it to buy more? Worth it.
Zoopla has just revealed that on average renting a property in the UK right now is 10% cheaper than buying the same place with a mortgage.
There are some surprising differences across the country, so buying it in Scotland and the North East is still at least 18% cheaper and buying it in London is 24% more expensive, but overall the rental wins.
According to MoneyFacts, the problem is a toxic combination of high house prices and uncontrolled mortgage rates, which means the average two-year fixed rate deal has risen to 6.7%. This is a world away from our lowest rates since the financial crisis.
Read more: How to manage child-rearing expenses?
However, the decision is not so straightforward. If delaying the purchase is a short-term plan, you are putting this aspect of your life on hold while you wait for mortgage rates to drop and home prices to stabilize.
This means you’ll spend another year paying off your landlord’s mortgage instead of your own, and it may also mean you’ll pay off your own mortgage later in life. This may not be a concern, but it should be factored into your decision.
If this is a permanent option like renting for a lifetime, you need to consider further finances. The question is what will happen to rents in the future. While your mortgage rate may rise and fall over the years, if you stay where you are, and don’t borrow any more, the current mortgage payment is likely to be just as bad for some time. This is not likely to happen in the case of rent also.
If you wait for prices to stabilize, it may take you another year to pay off your homeowner’s mortgage. Photo: PA/ Alamy
You also need to think about what you’ll do in retirement. One of the major benefits of home ownership is that you will either have the mortgage paid off in retirement, or you can downsize to pay off the remaining loan. This means your retirement income doesn’t have to cover the costs of putting a roof over your head. If you’re still renting in retirement, you’ll need a far larger pension to cover the costs.
Then there are the logistics for all the years in between. For certain ages and stages of life, renting works brilliantly. If you want the flexibility to move without hesitation and without breaking the bank, it is undoubtedly easier to do so as a renter.
Read more: Back to school – which subjects will make you rich, and which won’t?
This is one reason why living with someone for the first time is much less risky when you rent. However, if you’re renting later when you’ve put down roots and possibly have kids in school, eviction becomes a much more serious issue, so the less secure nature of renting starts to work against you.
You also have more control over how you live in your property. You can quickly tackle any maintenance or repairs, redecorating or making changes. On the other hand, you will be responsible for doing so and paying for it, so this freedom comes at a price.
It’s not a straightforward equation, but clearly it’s more complex than today’s cost of mortgage and rent. Given that rent is cheap in most parts of the country right now, it may tempt you to postpone your buying plans for the short term. However, it is worth considering all the implications before putting your plans on hold for the long term.
WATCH: How to save money on low income