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Renting might have a bad reputation in the UK, but there are now many financial and social benefits
The UK has a strong culture of house buying, with most people purchasing a home with a mortgage and paying it off over their working lives. However, with sky-high house prices and mortgage rates unlikely to return to their historic lows, there’s an argument that, in terms of monthly outgoings at least, buyers might be better off renting.
“Renting tends to have a more negative reputation in Britain compared to other European countries where renting is more common and socially accepted,” says Nick Woodward, Director of Lettings at Essential Living. “In countries like Germany and Switzerland, long-term renting is a standard practice and is not seen as inferior to homeownership. This cultural difference can be attributed to various historical, economic and policy factors that have shaped housing markets differently across Europe.”
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There are also several costs that buyers forget to factor in when they buy a home, including maintenance, building insurance and service charges. What’s more, circumstances change, jobs move and families get bigger. Renting offers a flexibility that’s not possible when you purchase a home.
Higher mortgage rates
With mortgage rates significantly up from their historic lows, there is an argument that renting is cheaper if you’ve purchased a property with a small loan-to-value ratio. Research by Hamptons in May 2024 found that would-be buyers with a 5% deposit face paying £300 per month more in mortgage repayments than if they continued renting. In London, where rents aren’t cheap, the data showed that servicing a mortgage would cost the average tenant an extra £775 per month or £9,300 a year.
According to Bank of England data, the average mortgage rate offered to a would-be buyer with a 5% deposit currently stands at 6.1%. Hamptons estimates that this rate would have to fall to around 4.2% to make the monthly cost of renting and buying with a 5% deposit similar. Across the south of the country, the falls would need to be even larger. In London, it would take a rate of 3.6% to equalise the cost of renting and buying on a monthly basis.
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“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. The uplift in the monthly cost to buy a home with a small deposit has made purchases unviable in most places south of Birmingham,” says Aneisha Beveridge of Hamptons Research.
Stamp duty
While you don’t pay stamp duty land tax (SDLT) on properties under £250,000, if you’re buying in the South East or a city, it’s unlikely you’ll avoid this. Stamp duty can be a significant amount, especially if you’re after a £1m+ home or have investment properties and have to pay the additional 3% rate.
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“With the high rates of SDLT for top-end property (which includes most of the housing stock of prime central London), 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. “This might be the location of their job or the size of the property if they are planning for a family etc. Prior to the SDLT changes, 10 years or so ago, buyers would be quite happy to buy a property then sell it to upsize or move back overseas a few years later. However now that buyers have to pay up to 15% in SDLT, many choose to rent until their requirements become more certain – 15% SDLT covers several years of rent!”
Maintenance costs
One of the benefits of renting is that any maintenance costs fall under the landlord’s remit. “If your shower starts trickling out cold water or your oven decides to stop working, it’s your responsibility to let the landlord know, but it’s not for you to expense,” says Woodward.
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“This can help take the stress away from you, as you don’t need to invest time and money searching for a handyman or budgeting for maintenance costs. If you own property, any issues that arise become your responsibility, potentially causing significant financial strain,” adds Woodward.
Flexibility
Renting also offers a more flexible option to buying so you can try out areas before committing to them or find accommodation for temporary periods if you’re only planning to work in an area for a set amount of time. “In prime central London, most tenants choose to rent, rather than it being an affordability criteria,” says Verger. “A large percentage of our tenants are from overseas, mainly European and North American and are initially here for a few years for employment or education. Typically, they choose to rent before deciding whether or not to buy.”
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Marc Schneiderman, director of Arlington Residential, has found something similar: “Many of the tenants we have rented to in St John’s Wood have the financial means to purchase a home but have chosen not to buy. Usually, this is because they are not UK nationals and just don’t know how long they will be in London for and, more recently, these would-be buyers have felt prices will fall and that renting is a better option affording them flexibility.”
Renting often means tenants can live in nicer, more centrally located apartments than they could otherwise afford to buy. “This accessibility means that renters can enjoy better amenities and lifestyle benefits, such as proximity to work, entertainment and cultural activities. Renting, therefore, can be a way of accessing desirable areas that enhance one’s quality of life and suit their lifestyle preferences,” says Woodward.
Smaller deposit needed
While renting and buying property require a deposit, they are for very different amounts. “When you buy a home, chances are most lenders will ask for a deposit of at least 10% of the property value. In comparison, your tenancy deposit on a rented home will usually be around five weeks’ rent, which is a lot less coming out of your bank account!” says Woodward.
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Better rights for renters
Over the last few years, the Conservative government has tried to improve things for renters, by giving them extra rights, for example, the right to keep pets and better deposit protection. While the Renters’ Reform Bill didn’t go through Parliament before the general election was announced, it’s likely that a Labour government will take this even further, abolishing Section 21 notices, so that landlords will only be able to evict tenants under certain circumstances. While controversial, this will make being a tenant more secure and appealing.
Access to great facilities
Service charges are the landlord’s responsibility and many high-end properties come with hefty annual fees that tenants don’t need to worry about. What’s more, for the landlord, these fees are tax-deductible, so they cost everyone less.
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“The landlord is responsible for the service charge of a flat and, given the increase in these charges over the past few years due to general inflation, utility costs and wage inflation, it is a great benefit to tenants to be able to enjoy a building’s amenities at no additional cost,” says Verger. “It is normal that a flat in a building with amenities, such as a pool, gym, porter, etc., will cost more to rent, thereby making less of an actual saving compared with the service charge if you were to own the property and pay the service charge. Tenants quite often like to enjoy these facilities in the knowledge that the cost is covered by the landlord.”
When you buy or sell a property, there are often a number of extra fees involved. These include estate agents’ fees and solicitors’ fees, while landlords have to pick up the tab for many of the fees associated with renting. “When you own a property, you have the option of selling up and moving to a new home, but there are a lot more strings attached. You will have to pay to list your home, pay seller fees and estate agent admin fees. Selling a home is much more difficult than simply cancelling a rental contract,” adds Woodward.
Property owners are also required to get building insurance for their property to protect it from subsidence, flooding, fire etc. If the property is high in value this could be a significant amount.
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