If you rent, deciding whether to take the plunge and buy a property is probably the biggest decision you’ll ever make.

For many people, the decision will be swayed by what’s affordable to them. In most areas of the UK, average monthly rents are higher than mortgage repayments, making buying a better bet, as long as you can afford the deposit.

But London house prices mean that in many London boroughs the reverse is often true. In Islington, monthly rents can be cheaper than the mortgage repayments on a similar property.

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Everyone’s circumstances are different, but if you’re struggling to decide we hope that this article will help inform your decision.

Should you buy a home?

Owning a property is a long-term ambition for many people, given that house prices always seem to be on the rise it is easy to see why.

If you are considering buying your first property, the upsides and drawbacks you should consider are:

The benefits of buying

  • Your monthly payments go towards buying your home, and not into a landlord’s pocket. At the end of your mortgage period you will fully own your home and can live ‘rent’ free.
  • If house prices rise, you will benefit from the increase in value, especially if you decide to downsize at a later stage.
  • Homeowners have much more freedom to put their stamp on a place and renovate to suit their lifestyle.
  • Money spent on home improvements is likely to be an investment, increasing the value of the property when you come to sell.
  • You don’t have a landlord who could make you move because they want to sell.

The drawbacks of buying

  • Buying involves a large initial financial outlay. You will need enough money for a deposit, stamp duty, legal costs, buildings insurance and mortgage fees. You’ll also need to furnish the place.
  • If you fail to keep up your monthly payments, you are at risk of losing your home.
  • Mortgage rates have been at historically low levels for several years, but this won’t last forever. While you can protect yourself for a period with a fixed rate, you’ll need to be able to meet the higher monthly payments when rates change.
  • If your finances become tighter, moving to a cheaper property can take along time as you have to sell your current home first. It might not always be easy to sell your home, depending on what is happening in the market.
  • You are also responsible for keeping on top of repairs and maintenance and acting swiftly if anything goes wrong. Unexpected emergencies, such as broken boilers or dry rot, can cost a great deal of money.

Should you rent a home?

when to rent and when to buyBuying your own home is a very British obsession. In the UK renting is often viewed negativity as the fallback option for people who can’t afford to buy. Renting is what you do whilst your struggling to save up for the mammoth deposit you’ll need to get a mortgage. Renting should not be see in such a pessimistic light as there are many benefits to balance against the drawbacks.

The benefits of renting

  • It can be easier to move house quickly when you need to
  • You won’t need to worry about falling property prices
  • If you are renting in London you may find that your monthly rent is slightly cheaper than mortgage payments plus you won’t have just shelled out for a large deposit. You may also find it easier to budget as rents tend to change less frequently than mortgage interest rates.
  • You may also be able to afford a nicer property in a more expensive location
  • You won’t need to put money aside for maintenance and unexpected repair jobs
  • Finding a home to rent is quicker than house hunting for somewhere to buy

The drawbacks of renting

  • Paying off your mortgage will ultimately mean you own the property outright, while money paid in rent will go entirely to your landlord.
  • People who never buy their own homes could feel less secure in their retirement, when they’ll still be paying rent from their pensions
  • There is also less security in renting. Although changes are afoot to remove landlords’ rights to seek possession without a cause, you will still need to move out if the landlord decides to sell or if there’s an unaffordable rise in the rent.

Which is cheaper?

In the short term it is often cheaper to rent in London. This is because the rent you pay is likely to be lower than your mortgage  and the deposit on a rental property is significantly less than the initial costs of buying a home. If you are buying a flat you may also have to pay service charges which you would not need to pay if you were renting.

However, mortgage  can sometimes be less than rent depending on the property you choose and the size of the deposit you can put down. Bigger deposits give you access to the best mortgage rates and reduce the size of the loan.

If you are thinking of buying you should contact mortgage lenders who will help you work out how much you can borrow and what the monthly repayments will be.

How to decide

renting rather than buyingIf you are still struggling to decide whether renting or buying in London is the best option for you, ask yourself these questions:

Do you have enough for a deposit?

To get a mortgage you will need to have a deposit. You should aim to save 10% of the cost of the property, although some lenders will offer mortgages with just a 5% deposit. For the best mortgage rates, you will need at least a 25% deposit.

If you do not have a sufficient deposit, then renting may be the best option for you.

Do you have enough for the other costs of buying a house?

As well as saving for a deposit you will also need to put aside money for other costs you will incur when buying a home. These include:

  • Survey costs
  • Solicitors fees
  • Mortgage arrangement fees
  • Stamp duty
  • Removal costs
  • Buildings insurance
  • Initial furnishing and decorating costs

Do you earn enough to afford a mortgage?

You should only buy a house if your income is sufficient to cover your mortgage repayments as well as your other outgoings, including credit card debt, other loans, household bills and general living costs.

Your mortgage lender will look at your salary and other income as well as your outgoings to ensure that you can afford the mortgage payments.

If you are struggling to get a mortgage, you could consider a guarantor mortgage. This means that a parent or close family member promises to cover any missed mortgage repayments if you are unable to.

How long will you stay in your next home?

If you plan to only live in an area for a short period of time or you expect your circumstances to change, renting is usually cheaper and more flexible when you need to move house. However, if you intend to live in an area or property for a long time, buying a house can work out cheaper.

Government help to buy a home

The government has created Help to Buy schemes to give home buyers a helping hand onto the property ladder.

The two main schemes are:

With an Equity Loan, the government lends you up to 20% (40% if you’re in London) of the cost of your newly built home. You pay a deposit of at least 5% and arrange a mortgage to make up the rest. You won’t be charged interest on the Equity Loan for the first five years of owning your home.

The Shared Ownership Scheme offers you the chance to buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share. You can buy bigger shares when you can afford to.