Sam Dunn: 'Should I rent or buy in London in the current climate?'

House Doctor

Question: I have moved to London and found renting very cheap, with so much supply in some areas that landlords are open to bartering. The rent on a three-bed house is about £1,200 a month, close to the mortgage we could afford (we have a large deposit). Should we rent for a while, with prices on the slide, or buy in case they turn up?
RH, Southampton

Answer: Rent used to be a four-letter word. Why throw money into an activity that gave you no equity later on?

But that was when prices kept rising, boosting property equity. Buy a house now, and it'll be worth less in a month or two.

With prices slipping by roughly 13 per cent over the past year, renting has become a canny option for those who can bide their time or have sold and are looking for a bargain.

The glut of rental properties is forcing down the cost of renting, too. The latest rental index from Gumtree, the online small-ads site, shows rents falling in London by up to 3 per cent.

"Demand for rentals is still strong, driven by people seeing renting as an attractive option in the climate, but we're seeing decline at the top end, as high-earners trade down," says Trisha Routledge, a Gumtree trends analyst.

You clearly have room to haggle and save money regardless of whether you rent or buy. However, says Andrew Montlake of the mortgage broker Cobalt Capital, you're more likely to bag a bargain if you buy.

"Good deals can be had on the rental market, but for those with a real eye for a bargain, purchasing may just be the best option."

The property-market trough will last another six to nine months, he estimates "and the best bargains will be had in the next three to six months".

Nobody knows when the market is likely to turn, but your five-year time horizon for buying could leave you with extra costs if you buy, warns Richard Morea at the broker London & Country.

"With limited time, the key is when; and if your employer moves you again within the next five years, consider the length of any early-repayment-charge period your mortgage might carry," he says.

You could also lose some of your deposit if prices fall further; add legal and estate-agent fees and stamp duty, and "you're more committed than if you rented".

Melanie Bien at the broker Savills Private Finance agrees, and thinks your five-year spell might not be long enough. "House prices will take a while to recover once they hit the bottom," she says. "And you may not have enough time to wait for this to happen. If your posting was longer, it might be worth taking more of a gamble on buying."

You could perhaps rent the property out after you move out so that you own it for longer than five years, she adds. "The days of making a quick buck out of property are gone for now."