One piece of financial advice I remember growing up was to "buy a house as soon as you're able since renting is just throwing money away!"

This is hardly the truth.

Deciding to rent or buy a home is a huge decision, and shouldn't be taken lightly. Both options have pros and cons, and your life stage will largely determine which one is right for you.

Debunking the "Throwing Money Away" Myth

While it's true that renting means handing your hard-earned cash over to the landlord every month, that doesn't mean that it's always a bad financial decision.

The cost of owning a home is often more than people realize. It goes far beyond the monthly mortgage payment.

For example--as a renter, if your roof starts leaking, you simply call your landlord to deal with the problem. As a homeowner, you have to pay for that yourself, and those expenses can add up throughout the course of a year.

Maintenance isn't the only "extra" cost of owning a home. Taxes, homeowners' association fees, and insurance add to the bill.

As a renter, some of these costs are baked into your monthly rent bill. But you have the benefit of knowing what your housing will cost each month, versus surprise costs that can pop up as a homeowner.

How do you decide which is right for you?

Deciding to buy a home is an impactful decision. The deposit required upfront can range from 5-20% of the total price.

This means that, if you're buying a home for £200,000, you'll have to come up with around £20,000 in cash before receiving the keys.

Coming up with this amount of dough could require years of saving for most people who rent in the meantime.

Even if you can afford the deposit, it may still be wise to rent. Typically, the longer you plan to stay in the home, the more likely it is that buying is a good decision versus renting.

This is because buying and selling a home comes with many transaction costs--estate agents, inspectors and mortgage brokers all get their cut whenever a home is sold. Frequently selling and buying homes will rack up these charges, in which case you'd have been better off renting.

Flexibility vs Protection Against Rising Housing Costs

Although many renters feel powerless since they don't own their homes, they have a luxury that homeowners don't have--flexibility.

Let's say you've received an incredible job offer halfway across the country. If you own your home, you'd have to go through a lengthy process of selling it and buying a new one, racking up the fees we talked about earlier.

As a renter, all you have to do is wait until your lease is up, hand the keys back to your landlord, and be on your way.

While this flexibility may be nice, renters face a different challenge--they're at the mercy of the housing market.

Home prices in the U.K. increased nearly 11% in 2021. Landlords typically pass these price increases on to renters, who may find their housing costs jump for every new lease they sign.

To summarize, renting vs buying a house is a highly personal decision. Take stock of your current life situation and research the area in which you plan to live before making this important decision.

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