Is it cheaper to buy or rent? As an agent, you may quite often get asked for your opinion.
According to Zoopla, it’s definitely the latter across 84% of the country – but it does its sums on an interest-only mortgage, the very products on which lenders have been significantly tightening up, and doesn’t factor in the mortgage deposit.
The Council of Mortgage Lenders, on the other hand, says it depends on whether you include the deposit in your calucations, and a different type of mortgage.
Factor in both, and buying is more expensive than renting for two-thirds of people who have a capital and interest repayment loan.
But if you ignore the need for a hefty deposit, buying is cheaper than renting a similar property across all borrowing types, and across all regions of the UK.
But that is not surprising when you take account of the fact that a typical deposit might be 25%, so the borrowing costs relate to only 75% of the property’s value, whereas a tenant will be paying rent covering 100% of the property.
If you factor in the deposit, then the cost picture changes. Under this scenario, buying becomes more expensive than renting for two-thirds of first-time buyers on a capital-and-interest repayment basis.
But buying is still cheaper than renting for around four-fifths of first-time buyers on an interest-only basis.
This means that, for any given consumer, it is possible that property could be cheaper to rent or cheaper to buy, in terms of monthly cost.
Owners face maintenance costs that tenants do not. But the CML argues that it is certainly not the case that one tenure offers a clear financial ‘win’ over the other.
For the UK as a whole, average repayment mortgage monthly payments are £176 per month more expensive than renting a comparable property.
Interestingly, however, rents are £176 per month – exactly the same amount – more expensive than average interest-only mortgage payments.
As CML director general Paul Smee says: “When you look at the monthly costs of buying and renting, it seems to be six of one and half a dozen of the other.”
Undeterred, Zoopla is continuing to issue its own monthly ‘is it cheaper to buy or rent’ figures.
Its latest data says it is cheaper to service a mortgage than to rent in 42 of Britain’s top 50 towns, and that on average, renting is now 16% more expensive than owning across Britain.
In London, it says, tenants pay £6,687 more on average per year than home owners.
It sounds like a no-brainer. Why pay so much more for the privilege of renting?
But remember, there are different ways of doing the sums.
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Comments
This is just a new slant on the 'renting is dead money' argument thats been around for years. Some years it works, some years it doesnt.
As a landlord, I would say this is fairly pointless analysis and no one in their right mind would make the decision based on whether it was slightly chepaer one way or the other.
For example, what price would you point on having to move your kids school because your reluctant landlord decides to sell? On the other hand, what price would you put on having to move quickly because your job has transferred?
Buying/renting is a lifestyle thing.
What is the point of an academic comparison making assumptions such as buying with100% interest only mortgage ? What % of houses can be bought this way by those seeking a residential primary home?
Wasn't it academics in financial markets that caused the housing crash? Let me answer that. Yes it bloody well was.
Come on zoopla- show some common sense and base your comparisons in reality.