Should I rent or buy? Why not both…

As someone who has rented in London since 2016, it’s easy to get caught up in how much you’ve “wasted” on rent over the years (more than £90,000 in case you were wondering). But according to a recent study from Hamptons, for the first time in more than six years, it’s cheaper to rent a property than it is to buy one*. Before the pandemic began in March 2020, people buying with a 10% deposit would have been better off than renters by £102 a month. But last month, the estate agent found that the average private sector tenant was better off, spending £71 a month less in rent.

“A house is made of brick and mortar, but home is made by the people who live there.” — M. K. Soni, author

To buy or to rent?

Personally, I love renting and buying a home has never been goal of mine. The idea of a starter home, or flat, simply to “get on the ladder” makes me cringe inside. But I realise not everyone – including some of my closest friends – have the same view.

Generally, first time buyers need around a 5-10% deposit. If you’re looking to live in London, even at 5% that’s a steep price as the average house price now exceeds £500,000. There are several government schemes that can help first time buyers, including the Help to Buy, Right to Buy or Shared Ownership. But for most, it’ll require a move outside the capital. However, for the first time in six years it might actually be possible to save when also paying rent. Could it be the best of both worlds?

Renting, investing and buying a home

In Greater London, where I live, it’s £251 cheaper to rent than to buy*. So maybe I should invest the difference. One option would be via the Lifetime ISA (LISA). This product allows adults under 40 to save £4,000 a year with a 25% bonus from the government. In my example of £250 a month, you’d be saving £3,000 a year plus receiving a bonus of £750 from the government. If you were aiming to save £30,000 for a deposit, it would take eight years, if saved in cash.

Read more about the stipulations and requirements of a Lifetime ISA here

Our Elite Rated funds could get you there faster. For example, assuming I had saved £250 a month when I first starting renting in 2016 and I got my 25% bonus from the government, Scottish Mortgage Investment Trust would have turned my investment into a staggering £42,599.73 in just five years (including a £3,750 government contribution).**

Six more Elite Rated funds would have generated enough money for a house deposit by now:

Fund Name£250 invested monthly for 5 years**Including government bonus
JPM China Growth & Income£37,507.17£41,257.17
Baillie Gifford Global Discovery £30,310.78£34,060.78
AXA Framlington Global Technology£29,647.67£33,397.67
Fidelity China Special Situations£29,621.05£33,371.05
MI Chelverton UK Equity Growth£27,074.36£30,824.36
AXA Framlington American Growth£26,325.65£30,075.65

Past performance isn’t a guide to future performance and these funds may not make as much money in the next five years, but why not try to have your cake and eat it too?

*Source: bbc.co.uk
**Source: FE fundinfo, monthly investments of £250 per month, 30 June 2016 to 30 Apr 2021

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.