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First-time Buyer Dilemma: Cheaper To Buy A House Than Rent A House?

Money Matters Editor By Money Matters Editor 9 Min Read

First-time buyers are usually faced with the problem of choosing whether it’s cheaper to buy a house than rent a house. Are you planning to buy or rent a house or flat?

Considering the house prices and real estate market, is it cheaper to buy a house than rent? There is always a question about whether it’s cheaper to buy a house or rent especially if it’s your first home.

For a first-time buyer, in most cases, the answers to whether to buy or rent a property could largely depend on your personal circumstances and the situation of the property market.

SEE ALSO: Common Home Buying Myths Young Property Investors Should Unfollow

The case for and against buying a property rather than renting depends on an individual’s circumstances.

Interest rates and house prices

Low-interest rates and falling property prices mean that buying a house or flat is over £120 a month cheaper for first-time buyers than renting a property.

Recent record low-interest rates have played a significant role in keeping the cost of borrowing low and driving down monthly mortgage payments. If you are thinking of buying in the current market you must keep in mind how rising interest rates would affect your monthly payments.

Fixed-rate deals remain the best way for borrowers to protect themselves against this uncertainty, but they don’t suit everyone’s financial situation.

Is it cheaper to buy a house than to rent?

The cost of renting a home has risen. The cost of taking out a mortgage has fallen. And house prices may, at last, have stabilized.


So might this be the perfect time to put away the rent book, plant a climbing rose over the doorway, and become king or queen of your own domain?

According to the housing charity Shelter, the cost of renting has risen by £300 a year over the past 12 months. And repayment mortgages are at their lowest interest rates for years.

Why it is good to buy a house

Because we don’t know your personal circumstances it would be hard to say you should rent or buy. So instead, here are some reasons to consider when looking to rent or buy:

#1]. Buy for investment

It’s good to buy a house for investment purposes as it helps you invest in your future. Normally, if you own a house, the monthly payment you are making is like a rent payment.

But the difference is that because it is a mortgage repayment, you are indirectly investing in your future and creating a valuable asset.

The monthly payment you are making is not going to a landlord, but rather to your mortgage lender. So you will still own the house at the end of the term of the mortgage.

#2]. Great feelings and freedom

Owning a property (especially the one you are living in) gives you maximum freedom to do whatever you like and is permissible within the planning regulations, to it.

Your home is your home, and depending on the space available, you can expand your house by adding more rooms, storage, or even a car park. You can make it a home for your family or simply move in and carry on.

There is always a great feeling of being in direct control of any problems with the property and you won’t have to deal with agents or landlords.

#3]. Experience, better management

The experience they say is the best teacher. Buying your first home will require you to put in lots of effort to be able to make your dream come through.

But when you have done it once, you will be better equipped as the process is very similar for future purchases. For a first-time buyer, owning your first home offers you a great way to kick-start financial planning for your future and how to manage the costs of running a home.

Why it is good to rent a house

Because we don’t know your personal circumstances it would be hard to say you should rent or buy. So instead, here are some reasons to consider when looking to rent or buy:


#1]. Flexibility

Unlike when you want to buy a property, renting gives you the opportunity to choose where you like to live. For instance, if your choice of a place to live is a high-end neighbourhood, it probably will be easier to get a property to rent than a property to buy at an affordable rate.

Also, you can easily decide to move somewhere else after a short period of time if the neighbourhood isn’t what you like. This can be easily done because your rental contract can be terminated after 6 months, unlike when you own the property. This will allow you to move to a new location or try a new location easily.

2]. No maintenance responsibility

Another reason why renting a property is considerably better than buying one is because as a tenant, it is the responsibility of your landlord to maintain the property.

For instance, if the boiler or the central heating system broke down, you wouldn’t have to worry about yourself because it is the responsibility of your landlord to repair any faulty appliances (especially those ones that weren’t bought by you).

3]. Nothing to do with housing market

Yes, what happens in the housing market is none of your business if you are renting because the financial responsibility will not affect you. You are not going to be affected by any housing market-related conditions.

You will of course have to pay rent but you’re not tied into monthly repayments on a bigger loan and therefore cannot fall into negative equity.

House price + government’s scheme

To try and get around the deposit issue, the government has launched a number of schemes to help would-be homeowners. Under HomeBuy, buyers have to find a five percent deposit. They then take out a mortgage for up to 75% of the property and pay rent on the outstanding amount.

FirstBuy has a similar aim for first-time buyers, but instead of paying rent, owners take out an equity loan to finance the balance.

And then there’s the NewBuy guarantee scheme, known as MI New Home in Scotland, which started a year ago. Borrowers can get a 95% mortgage under the scheme because loans are underwritten by the builders and the government.

But the BBC learned that up to the end of 2012, only 1,500 people had actually managed to buy as a result of the NewBuy scheme. Some experts say NewBuy had helped but was not on the scale and size of the initiatives we need to build new houses, to reduce the cost overall, and to help people onto the ladder.


In the meantime, deposits are unlikely to fall below that five percent requirement. As a result, homeownership for millions of renters in the UK will remain an elusive ambition.

While buying may win out over renting today according to some latest research works, the impact of a rise in interest rates cannot be ignored.


If interest rates were to increase by 1% and rents to remain the same, renting would become more cost-effective in 80% of the locations recently studied.


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