To buy or not to buy – that is the question

As it gets increasingly tough to get a foot on the property ladder, Rob Griffin considers the pros and cons of renting and buying
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The Independent Online

Lauren Allchurch is facing the same dilemma as thousands of would-be home owners across the country: Should she stretch her finances and move to a cheaper area in order to own a property or is it more sensible to continue renting until the global economy settles down?

The 28-year-old, who works in public relations, rents a flat with her doctor boyfriend, Jon, in Wandsworth, south-west London. While they harbour dreams of buying a place together, they would struggle to raise the deposit required for a property in an area where they would like to live.

"We couldn't afford where we are now if we'd bought rather than rented," she says. "If we're going to commit to buying a property, we'd want to look for the longer term which would mean it needing a minimum of two bedrooms and a small garden."

Although they have thought about buying out of London, they fear that a long commute, especially when both have friends – as well as social and sporting activities – in the capital, would put a strain on their relationship. "For the time being we plan to sit tight in our flat and perhaps speak to a mortgage broker in six months' time to discuss our options," she adds. "We will then decide if we're willing to compromise on location or property size before deciding whether to continue renting or looking to buy."

It's not an easy decision. Getting on to the property ladder remains tough for most youngsters, according to the latest Changing Face of British Homes report from Legal & General, which reveals that only 18 per cent of those aged between 25 and 34 plan to take the step within the next 12 months.

That figure is even lower among the 18 to 24 age group, with just 17 per cent saying buying a property was a priority. However, the study also highlights that the latest findaproperty.com rental index shows prices are 4.4 per cent higher than a year ago.

Problems with raising a deposit, lenders introducing stricter criteria, worries over job security and a desire not to be tied down are among the principal reasons why people appear to see renting as the most viable, longer-term proposition.

There were 22.3 million dwellings in England in 2009, of which one million were vacant, according to the English Housing Survey housing stock report, published earlier this year. Around 15 million (67 per cent) were owner-occupied with one in six (16 per cent) privately rented and the remainder split evenly between local authorities and housing associations.

David Hollingworth, spokesman for broker London & Country, believes the idea that an Englishman's home is his castle still holds true, but accepts this deep seated desire is being tempered by financial considerations in an uncertain economic environment.

"My gut feeling is that most people like the idea of their own property but it's down to whether they can actually afford it," he says. "The biggest challenge they face at the moment is pulling together enough of a deposit to secure a mortgage."

So what are the pros and cons of each approach?

Renting gives you flexibility which can be particularly attractive if your circumstances are likely to change or there is uncertainty surrounding job prospects. Most agreements are for six or 12 months. It also means you don't have to raise thousands of pounds for a deposit or pay the costs associated with house purchases, including solicitors' fees, and arrangement fees with lenders.

Kate Faulkner, managing director of website Designs On Property, also believes renting is essential if you're moving to a new area and wonders if now is the right time to buy anyway. "When you consider no one knows what's going to happen to house prices over the next five years, anyone looking to buy and sell within that period will also be taking a risk," she says.

Matt Hutchinson, director of flat and house share website SpareRoom.co.uk, insists home ownership is a very British obsession and points out that it's normal practice in many European countries to rent rather than buy. "It also has many advantages such as giving tenants greater flexibility to move with work, relocate closer to the best schools or upsize/downsize without the hassle of negotiating the property market," he says. "Nor do tenants have to worry about expensive maintenance work on their property, or their home losing value, which are common concerns for homeowners."

He also says the concept of sharing accommodation is no longer the preserve of students, citing a survey carried out among 10,000 of his site's users that showed one in eight of people living this way are over 40. The statistics also reveal that one in three flatmates in the UK are over 30, one in five earns at least £30,000 a year and 75 per cent are educated to degree level or higher. Only 34 per cent said they could afford to live on their own if they wanted.

The first benefit of buying is security of tenure. Owning a property means you're not at the risk of being forced to find a new home if your landlord decides not to renew your lease. (For example, they may be an "accidental landlord", who is only renting their property out until they find a buyer.)

There might also be savings – once the fees associated with the house purchase have been stripped out – because the cost of buying a home for first-time buyers is more than £100 a month lower than renting, according to research by Halifax. The study showed the average monthly costs associated with buying a two-bedroom flat totalled £567 in July – 16 per cent (£110) lower than the typical rent paid on such a property. This contrasts with 2008 when the average cost of buying was 29 per cent (£212) more than the average rent.

There are a number of reasons for this, according to Suren Thiru, housing economist at Halifax. "The recent decline in the cost of buying a property for first-time buyers compared to renting has been substantial and reflects the drop in both mortgage rates and house prices since 2008, as well as a marked increase in the average rent paid over the past year."

There are also longer term benefits associated with buying if you opt for a repayment mortgage rather than interest only, points out Geoff Penrice, a financial adviser with Honister Partners. "At some point the mortgage will be cleared and there will be no further costs – but rent never stops," he says. "People often have the objective of clearing their mortgage before they retire so their costs go down at the time when their income also drops."

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