Should I rent or buy a new home in London?

Key Takeaways

• Renting is traditionally more affordable in the short term.
• Long-term homeownership can be cheaper despite potential mortgage bill increases.

• Flexibility: Quick relocation.
• Ease and Speed: Faster process.
• Maintenance: Landlords handle repairs.
• Property Value: No impact if values fall.
• Options Outside Budget: Live in desired areas.

• Investment: Long-term investment.
• Ownership: Have your own place.
• Stability: No landlord worries.
• Improvements Benefit You: Any upgrades help you.

Which is cheaper - buying or renting in London?

Traditionally, renting has been more affordable in the short term. A tenancy deposit almost certainly costs less than the initial costs involved in buying a home. But let's take a closer look at the figures:

• According to the Let Alliance Rental Index, the average monthly rent in London was £1,898 in August 2022 ³.
• The average London house price was £544,113 in September 2022 ⁴.
• The average monthly mortgage payment was around £750 – however, rising interest rates mean the average mortgage bill is expected to reach £1,000 in 2023 ⁵.
• While renting in London is becoming more expensive, buying a house is a long-term investment. Considering the length of a mortgage – usually 20 to 25 years – homeownership can work out cheaper than renting, even if mortgage bills rise.

What are the pros of renting a home in London?

The main benefit of renting is flexibility. If you have to relocate often for work, for example, renting means you can give notice and move home quickly when the time comes. And that's not the only reason it can be a practical choice:

• Finding and renting a home is often easier and faster than buying a property.
• The landlord's responsible for repairs, renovations and maintenance costs – meaning no sleepless nights worrying about the possibility of a broken boiler.
• If the property's value falls, your investment won't be affected.
• You can opt to rent in areas outside your purchasing price bracket.

What are the cons of renting a home?

The biggest disadvantage of renting is that the money you spend each month goes to your landlord rather than towards buying your first home.

There are many other factors to take into account when thinking about the cost of renting:

• You'll have to pay a large upfront sum, which could include a deposit plus one month's rent, and there's no guarantee your landlord will return your full deposit at the end of your tenancy.
• Not buying means you'll still be paying rent after you retire.
• Your landlord is free to increase your rent, impose tenancy rules, sell up or find new tenants.
• Your landlord may only allow minimal changes to the property, and any improvements you make will ultimately only benefit them.

What are the pros of buying a home?

As well as potentially working out as less costly in the long term, buying a home offers all these other benefits:

• You'll be investing your money in a place of your own rather than making someone else richer.
• You can decorate it to your taste rather than someone else’s, so it truly feels like home.
• Once you've paid off your mortgage, you'll own your home outright.
• If house prices rise you could make a profit.

Should I buy a brand-new home in London?

If you ultimately decide to buy a house or an apartment in London, you'll also need to choose whether to go for an existing property or a brand-new home.

In 2022, electricity prices in the UK rose by 65.5% and gas prices by 128.9% ⁶. Brand-new homes are typically much more energy-efficient – a major draw as utility bills soar.

For example, a brand-new Barratt London home could be up to 65% cheaper to run, saving you more than £2,750 yearly on your energy bills, compared to an updated Victorian equivalent^. We use highly-efficient insulation as standard in our brand-new homes, in addition to enhanced double-glazing, locking the heat in and cold draughts out.

There are several other reasons to consider buying a new build in London:

• Effective insulation also acts as good soundproofing – this can be especially important when living in London.
• Brand-new homes typically require far less maintenance than older properties.
• If you're buying off-plan, you may have greater freedom decorating to your taste.

What are the cons of buying a home?

Saving for a deposit on a house can be challenging. With mortgage fees and Stamp Duty payable upfront, buying a home in London will initially be more expensive than renting.

You'll also need to think about the following:

• Your monthly mortgage payments can be affected by rising interest rates – however, you can avoid this by choosing a fixed-rate mortgage.
• The demand for property is volatile, and you can't guarantee your home will hold or increase in value.
• If you're faced with significant personal or financial changes and need to sell, the process is longer and more complex than ending a tenancy.

So, should I rent or buy a house?

Whether you're better off renting or buying a home in London depends on your financial and personal circumstances. To help you make up your mind, here are five key questions to ask yourself:

Do you have enough money for a deposit?

Most mortgages require you to put down a deposit of at least 5%. At Barratt London, we offer house-buying schemes like Deposit Unlock to help make purchasing your own home more affordable. Can you afford the upfront costs of buying a home?

From moving expenses to conveyancing and solicitors' fees, the cost of moving can quickly run into thousands of pounds. You may also be liable for Stamp Duty, a tax based on a percentage of your new home's sale price.

Do you earn enough to secure a mortgage?

Remember, you can only get a mortgage if your income will cover your repayments while leaving you with enough to live on each month. You also need to prove to lenders that you can afford the mortgage.

How long will you stay in your next home?

If you only intend to live in an area for a short time, renting is usually less expensive and gives you more flexibility. This is because the initial costs involved in buying a home are far greater than the deposit you pay at the start of a rental. However, buying a home can work out cheaper if you plan on staying in an area or property for a while.

Will you be living alone or with someone else?

The question 'Is it better to rent or buy?' also depends on whether you'll be living alone. If you're moving in with a partner, you could potentially pool your resources to secure a bigger mortgage. You could also invest in a home with friends rather than rent.

Buying brand-new with Barratt London

Deciding whether to buy or rent is a big decision, so take your time to consider the above and work out what’s best for you.

Interested in buying brand-new? We’re here to help. From our commitment to nurturing natural, biodiverse environments to our energy-efficient designs, you get the best of all worlds with our homes.

So, if you think a Barratt London home could be the right fit for you, explore our exciting new developments today.

¹ Index of Private Housing Rental Prices, UK: October 2022, Office for National Statistics
² UK House Price Index: September 2022, Office for National Statistics
³ Rental Index Report 2022, Let Alliance
⁴ UK House Price Index for September 2022, HM Land Registry
⁵ Mortgage rates to surge by up to £3,000 a year, inews
⁶ Cost of living insights: Energy, Office for National Statistics

^Indicative figures, based on research from Briary Energy, September 2022