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Is Buying A Home Still Financially Better Than Renting?
By admin | April 16, 2008
The Abbey produced their annual report this week that compared the financial cost of renting a home as opposed to buying the same home. Last year, the report showed that over the period of a 25 year mortgage the home buyer would save £24,000. This year’s report has reduced that figure to just £5,811, or a little bit over £230 saved per year.
So is it worth buying your own home or should more of us be looking at renting?
The report takes into account mortgage payments and the average maintenance costs against predicted rent payments over the term. It has assumed that the buyer is taking out a mortgage to the value of 90% of the property value.
The report gave an average cost over the 25 years of £437,925 against £443,736 for renting the same property. Looking at those figures, not much of a saving. If you consider that in that 25 years you might move house a few times, then the home owner also incurs mortgage arrangement fees, solicitors fees etc to cover the cost of moving. Whereas the renter just moves their furniture.
On the face of it the report makes the prospect of house buying look very bleak. Buy a house with above average maintenance or move house more than a couple of times and you could have saved yourself a sum of money by just renting.
What the report doesn’t look at is what happens after those 25 years are up. In the case of the buyer who has paid all of their mortgage payments, they own the house outright. Whereas the renter is still in the same position as day 1.
Also, over the last 25 years the average house price has risen from around £23,600 to £194,300. Although previous house prices rises can’t be used to determine what will happen in the future of the housing market, had you started the mortgage in 1982 you would be payment free now and looking at an incredible profit.
Going back to the report, it is based on a 10% deposit. If you can afford more than that then the mortgage payments will fall further, widening the ‘profit’ of buying against renting. Although that assumes that house prices will rise at least in line with how you previously had the cash invested.
Overall, interest rates might be painful at the moment, but as long as the housing market doesn’t take a long term drop then I personally think the advantages still lay with the home buyer rather than the renter.
If you are considering a house purchase or a remortgage then you can check out all of the latest mortgages available in the UK by visiting CompareMortgageRates.co.uk. Please discuss your circumstances with a mortgage broker before entering into any agreement as the opinions stated might not be suitable for your circumstances.
Tags: buying home, mortgage, renting
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