Renting may have a bad reputation in the UK, but there are now many financial and social benefits
There is a strong culture of home buying in the UK. Most people buy a home with a mortgage and pay it off over their working lives. However, with house prices astronomically high and mortgage rates unlikely to return to their historic lows, there is an argument that buyers would be better off renting, at least in terms of monthly outgoings.
“Renting has a somewhat negative reputation in the UK compared to other European countries where renting is more common and socially accepted,” says Nick Woodward, Director of Lettings at Essential Living. “In countries such as Germany and Switzerland, long-term renting is a common practice and is not seen as inferior to home ownership. This cultural difference can be attributed to various historical, economic and political factors that have shaped housing markets differently across Europe.”
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There are also several costs that buyers don’t consider when buying a home, including maintenance, building insurance and service charges. In addition, circumstances change, jobs move and families grow. Renting offers flexibility that isn’t possible when buying a home.
Higher mortgage interest rates
With mortgage rates well above their historic lows, there is an argument that renting is cheaper when you have purchased a property with a low loan-to-value ratio. Research by Hamptons in May 2024 found that prospective buyers with a 5% deposit would have to pay £300 more in mortgage payments per month than if they continued to rent. In London, where rents are not cheap, data showed that servicing a mortgage would cost the average renter an extra £775 per month, or £9,300 per year.
According to the Bank of England, the average mortgage rate offered to a prospective buyer with a 5% deposit is currently 6.1%. Hamptons estimates that this rate would need to fall to around 4.2% to equalise the monthly cost of renting and buying with a 5% deposit. In the south of the country, the falls would need to be even greater. In London, a rate of 3.6% would be needed to equalise the monthly cost of renting and buying.
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“Although year-on-year rental growth has leveled off at around 6%, renting is still more cost-effective than buying for most households across the country. High mortgage rates have priced low-down-payment buyers out of the market, forcing more households to live in rented accommodation for longer. The increased monthly cost of buying a home with a low down payment has made buying unviable in most places south of Birmingham,” says Aneisha Beveridge of Hamptons Research.
Stamp duty
Although you won’t pay SDLT on properties under £250,000, it’s unlikely you’ll be able to avoid it if you’re buying in the South East or a city. SDLT can add up to a significant amount, particularly if you’re looking for a home over £1m or own investment properties and have to pay the additional 3% rate.
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“Due to the high SDLT rates on prime properties (which include the majority of housing stock in the best areas of central London), it can be cheaper for people to rent when they are unsure of their future location or needs,” says Sabaya Verger, partner and lettings consultant at Tedworth Property. “This could be the location of their job, the size of the property if they are planning a family etc. Before the SDLT changes around 10 years ago, buyers were quite happy to buy a property and then sell it to upsize a few years later or move abroad again. However, now that buyers have to pay up to 15% SDLT, many are opting to rent until their requirements are more specific – 15% SDLT covers several years of rent!”
Maintenance costs
One of the benefits of renting is that all maintenance costs are covered by the landlord. “If your shower starts leaking cold water or your furnace stops working, it’s your responsibility to inform the landlord, but you can’t cover the costs yourself,” says Woodward.
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“This can take the stress out of finding a tradesman or budgeting for maintenance costs. If you own a property, you are responsible for any problems that arise, potentially causing significant financial stress,” adds Woodward.
flexibility
Renting also offers a more flexible option than buying, allowing you to try out areas before committing, or find temporary accommodation if you only want to work in an area for a certain amount of time. “In the best areas of central London, most tenants choose to rent rather than consider it as an affordability criterion,” says Verger. “A large percentage of our tenants come from abroad, mainly from Europe and North America, and are here for a few years to work or study initially. They usually choose to rent before deciding whether or not to buy.”
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Marc Schneiderman, director of Arlington Residential, has had a similar experience: “Many of the tenants we have rented to in St John’s Wood have the financial means to buy a home but have decided against buying. Usually this is because they are not British citizens and simply do not know how long they will be staying in London. Recently, these potential buyers have felt that prices are going to fall and that renting is a better option that offers them more flexibility.”
Renting often allows tenants to live in nicer, more centrally located apartments than they could otherwise afford. “This accessibility means tenants can enjoy better amenities and lifestyle benefits, such as proximity to work, entertainment and cultural activities. Renting can therefore be a way to gain access to attractive areas that improve quality of life and suit one’s lifestyle preferences,” says Woodward.
Small deposit required
While renting and buying a property require a deposit, they are very different amounts. “If you’re buying a house, most lenders are likely to require a deposit of at least 10% of the property value. In comparison, your rental deposit for a rented house is usually around five weeks’ rent, which is a lot less, which is taken out of your bank account!” says Woodward.
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Better rights for tenants
In recent years, the Conservative government has tried to improve the situation for tenants by granting them additional rights, such as the right to keep pets and better deposit protection. Although the Tenant Reform Bill failed to pass Parliament before the general election was announced, it is likely that a Labour government will go further and abolish Section 21 evictions, meaning landlords can only evict tenants in certain circumstances. While controversial, this will make renting safer and more attractive.
Access to great facilities
The utilities are the landlord’s responsibility, and many luxury properties have high annual fees that tenants don’t have to worry about. Plus, these fees are tax deductible for the landlord, so they cost less for everyone.
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“The landlord is responsible for an apartment’s service fees. With fees increasing in recent years due to general inflation, utilities and wage inflation, it is a great benefit for tenants to be able to use a building’s amenities at no additional cost,” says Verger. “It is normal for the rent of an apartment to be higher in a building with amenities such as a pool, gym, concierge, etc., so the actual savings compared to the service fees would be less if you owned the property and paid the service fees. Tenants are often happy to use these amenities knowing that the cost is covered by the landlord.”
When you buy or sell a property, there are often a number of additional fees that come with it. These include estate agent and legal fees, while landlords must cover many of the fees associated with renting. “Owning a property gives you the option to sell it and move into a new home, but there are many more strings attached to that. You have to pay to list your home, seller fees and agent administration fees. Selling a home is much harder than simply breaking a lease,” adds Woodward.
Property owners are also required to take out building insurance on their property to protect it against subsidence, flooding, fire, etc. For high-value properties, this amount can be substantial.
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