Why renting may be cheaper than buying
We're a nation that's in love with home-ownership. Even as prices have risen through the roof, we have clung to the dream of eventually affording a place of our own. Successive surveys have proved that the finances stack up too - and that in the current environment buying is cheaper than renting.
However, new research has revealed that this may not be the case after-all.
Buying may be cheaper...A study by Zoopla.co.uk has backed up previous studies that show that taken as an average, buying is the cheapest option. The average rent is 14% more than the average buyer would pay in interest on an interest-only mortgage. If you live in a typical two-bedroom property, then your rent is £987 more a year than a mortgage would be.
The figures play out across much of the country, including 86% of cities. Lawrence Hall of Zoopla.co.uk said: "As a general rule it is much more cost-effective to own a property than rent it. This is particularly true in the north, where a big gap has opened up between the cost of renting and owning."
He added that this was because: "Would-be buyers in the north have found it harder to get a mortgage, which has forced more of them into the rental sector. This has had the dual effect of pushing up rents and keeping a lid on property values, making owing a great option, provided you can get a mortgage."
Hull is the most striking example - where it is 62% more expensive to rent - followed by York at 60%, Peterborough at 50%, Milton Keynes at 39% and Derby at 36%.
Renting is cheaperHowever, there are some significant exceptions. The most striking reversal of the trend is in Swansea, where you would spend £1,169 more per year on mortgage interest than you would on renting. That's 13% more.
This is partly because property prices in Swansea are buoyant. Over the past 12 month, according to home.co.uk, a 2-bedroom property has increased in value by 8% to £130,763. Meanwhile, there is an over-supply of rental properties: the site found that the average 2-bedroom property took over 80 days to rent out. This has depressed rental prices, and tipped the balance.
It is followed by Bournemouth, where renting is 9% cheaper. Here house prices have remained fairly static, so the issue is one of over-supply in the rental market. There are a particularly large number of two-bed properties on the market, which spend over two months waiting to be rented out, which again brings the prices down.
Stockport, meanwhile is 5% cheaper to rent than buy, and Edinburgh and Dundee are 2% cheaper.
ElsewhereEven where on paper buying is a cheaper option, there are additional factors to bear in mind. Most significantly, this assumes you can get an interest-only mortgage. These are getting rarer by the day, so most buyers will end up with a repayment mortgage, where monthly payments are much higher. You could argue that you end up with a property of your own at the end of it - but it comes down to whether you can afford the extra monthly costs.
Even if you are able to get an interest-only mortgage, you have to ask yourself what advantage this gives you over renting anyway. When you come to retire and can no longer afford to keep paying the mortgage, you would have to sell up to repay the debt. If the property price has increased then you are better off, but if it has fallen, then you may well find yourself in a far worse situation than if you had rented.
Then there are the running costs to consider. Where a tenant can call in the landlord to deal with a broken boiler or water pouring through the ceiling, an owner has to shell out hundreds or thousands of pounds to put the problem right.
And things don't have to go wrong to cost you money. There's an endless cycle of maintenance, redecorating and re-carpeting to consider. This can easily set you back hundreds of pounds a year and tip the balance in favour of rental.
It means that we may be wedded to the idea of buying, but for thousands of people, when you factor everything in, a life of rental may well be our only option.
But what do you think? Do you favour renting or buying? Let us know in the comments.