A guide to buying the house you rent

It’s nice to have your own home, and getting on the property ladder and becoming a homeowner offers greater security than renting. Let’s take a look.

It’s nice to have your own home, and getting on the property ladder and becoming a homeowner offers greater security than renting. Let’s take a look.

Daniel Evans
Mortgages expert
4
minute read
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Last Updated 7 OCTOBER 2022

Is it better to own or to rent?

Having a mortgage can lead to you owning your home, whereas rent is often seen as ‘dead’ money. On the other hand, some people enjoy the flexibility of not being tied to a long-term mortgage. Here are the key points if you’re thinking of buying your home from your landlord.

Understand the costs of owning a property

Owning a home means you’re responsible for its maintenance and any repairs – when you’re renting, these costs are covered by a rental agency or private landlord.

Plus, there are costs involved in getting a mortgage. These include:

  • Deposit - as a minimum, you should aim to save at least 5-10% of the purchase price.
  • Mortgage payments - your mortgage repayments will depend on the property value, the type of mortgage, your deposit, the interest rate
  • Stamp duty - this applies if you’re buying a home in England or Northern Ireland that costs more than £250,000 (or £425,000, if you’re a first-time buyer). In Scotland, you might need to pay Land and Buildings Transaction Tax, while in Wales it’s the Land Transaction Tax.
  • Mortgage lender fees - these can cost anything up to £2,000.
  • Legal fees - payable to a solicitor (or conveyancer) for a range of legal services.
  • Mortgage broker fee - if you get mortgage advice from a mortgage broker, you may be charged a fee.

Speak with your landlord

Once you’re sure you can afford the costs of owning the property you’re renting, get in touch with your landlord. If you have a private landlord, simply ask if they have any future plans to sell the property and express your interest in buying if they do.

If the house you rent is managed by a company, you might want to ask for a face-to-face meeting. If you get a positive response, it may be time to explore your options on the mortgages market. Your next step could then be to secure a decision in principle on a mortgage.

How much deposit do you need to buy a house?

To get a mortgage, a home buyer will usually need a deposit of at least 5-10% of the price of the property. The more you can save for a mortgage deposit the better, as this will boost your loan to value (LTV) ratio, which means you may be able to benefit from lower interest rates.

Unfortunately, not everyone has a family member that leaves a deposit as an inheritance or gift. If you need help saving for a deposit, you could look at savings accounts like the government-backed LISA.

Use our mortgage calculator to get an idea of what you could afford to borrow, based on your deposit and income.

What are the different types of mortgages?

Once you’ve saved up your deposit, you need to decide which type of mortgage deal is best for you. There are three main types of mortgages to choose from:

  • Fixed-rate mortgage – your mortgage payments are fixed during the agreed mortgage term. If the Bank of England base rate changes and interest rates rise or fall, you won’t be affected until the end of your fixed term. At this point, you’ll move to the lender’s standard variable rate (SVR), unless you remortgage.
  • Variable rate mortgage – including tracker rates which are tied to the Bank of England base rate, and discounted rates which give you a discount off the lender’s SVR.  If interest rates rise or fall, your mortgage will rise and fall with them.
  • Interest-only mortgage – with these, you don’t repay the capital of the loan, only the interest. This means your monthly payments will be cheaper, but you’ll need to pay the full balance at the end of the mortgage term, which means you’ll need a financial plan to pay off this significant sum. This is unlike a repayment mortgage, which sees you pay off both the interest and capital on the mortgage, leaving you with nothing to pay at the end of your mortgage term.

How do I apply for a mortgage?

When submitting a mortgage application, lenders will want to carry out an affordability/eligibility check on you. This involves a review of your credit rating and credit history, as well as your income and outgoings.

Mortgage providers will use your credit score to help calculate your mortgage deal. If, for example, your credit history reveals credit card debt over a period of time, you might be forced to pay a higher interest rate, which means your monthly repayments would cost more.

To help you find the right mortgage deal, you can compare mortgages at Comparethemarket. We compare mortgages from dozens of mortgage providers to help you find out what you can afford.

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