Its Official, Cheaper To Buy Than Rent

[Time to raise the rents.]

I wonder how many variations of this story will appear in the papers today or tomorrow? IMO they have made a mistake by failing to mention the extreme saving during the 2nd 25 year period, where the full benefits of ownership are felt.

http://www.sky.com/skynews/article/0,,30400-13527952,00.html

'Save Cash By Buying'

Updated: 06:51, Monday June 12, 2006

People who opt to buy their own home rather than rent it can save an average of nearly £25,000 over 25 years, research has claimed.

The cost of buying and maintaining a property over 25 years adds up to £379,341, while renting one for the same period costs around £403,713, according to High Street bank Abbey.

As a result people who choose to get on to the property ladder will be an average of £24,372 better off than renters after that period of time.

Abbey said that for the first time since it started doing the survey five years ago, it was cheaper for people in certain regions to rent than to buy.

However, this did not take into account the fact that those who bought would own a mortgage-free property after 25 years.

Abbey said people who opted to rent in Wales would be an average of £27,416 better off after 25 years than homeowners, while tenants in the South West would save £21,009 compared with if they had bought their own place.

It said the gap between renting and buying had been narrowing each year as a result of strong house price inflation increasing the cost of getting on to the property ladder.

The difference between buying and renting across the UK is greatest for a two-bed flat, which costs just over £60,000 or 19% less to buy and maintain over 25 years than to rent.

But people wanting to live in a four-bed detached home would actually save £36,523 or 7% by renting the property rather than buying it, although they would not own their home at the end of the 25 year period.

Edited June 12, 2006 by Time to raise the rents.

[Guest wrongmove]

Cheaper to buy than own ?

I know you are a credible bull TT, but surely owning is cheaper than paying a mortgage ?

[Time to raise the rents.]

Yes and the problem is predicting a dip with any accuracy as shown time & time again on this forum. Anyone can say that you might be able to wait & pay less, but what if they're wrong? Then the best chance to pay less was when the person was able to buy.

I'm disappointed that the article mentioned that the buyer owns at the end of 25yrs & the renter doesn't, so it's difficult to judge how accurate the research is. As we know here on the forum, the real comparison is rent & costs versus interest & costs. Paying off the loan isn't a cost, it is more to do with savings etc.

So to say X total payments versus Y total payments isn't accurate if loan payments are included and the answer would be that renting is far more expensive if loan payments were stripped out.

So I hope there will be some variations on this story or if someone has a few minutes to search for a link to the original Abbey National reseach rather than Sky's version.

Edited June 12, 2006 by Time to raise the rents.

[teddyboy]

However, this did not take into account the fact that those who bought would own a mortgage-free property after 25 years.

Another desperate attempt to prop up the market and discourage renting. If this is the case then I put it to Abbey to STOP Interest Only Mortgages. This is RENTING but from the bank! Lets see how many buyers are left then????

W@nkers!!!

TB

Edited June 12, 2006 by teddyboy

[Realistbear]

And according to some experts only 17.87% of people actually remain in one house for 25 years and that figure is declining by 24.88%. Experts agree that the average person moves every 4.017 years which means about 5 moves in the 25 year period and the cost of moving that many times (stampt duty, soliciotrs costs) will outweigh the 25k "saved."

Further, if the person who remains in a house 25 years has to replace the roof during their period of occupancy the "savings" will be substantially reduced, especially in areas where slate roofs or thatch are specified (Graded buildings).

The bottom line is that it is "nice" to own rather than rent/mortgage but when renting at the point in the cycle when house prices are at or near a peak the temptation to buy should be repressed.

[munro]

This sh!tehole has come down in price from £85k to £75k in the last two to three weeks. That's still around three times average wage, for an ex-council studio in a dodgy block in a dodgy area - affordable housing, then.

Yeah, sure, fill yer boots. Then spend 25 years regretting it.

link - http://www.rightmove.co.uk/viewdetails-670...a_n=28&tr_t=buy

[dog]

I wonder how many variations of this story will appear in the papers today or tomorrow? IMO they have made a mistake by failing to mention the extreme saving during the 2nd 25 year period, where the full benefits of ownership are felt.

Perhaps they could also mention the extreme benefits of the 2nd 25 year period of renting. The investments a person can accrue could generate much better returns than property (this is certainly the case for me at the moment).

Studies of this kind are produced to trick young and poorly informed people into buying. What happens if house prices remain stagnant or fall over the 25 year period (which seems quite likely for the next 25 years)? What happens if rents fall or interest rates go up to 12%?

[Time to raise the rents.]

Cheaper to buy than own ?

I know you are a credible bull TT, but surely owning is cheaper than paying a mortgage ?

Ooops. Well spotted.

Cheper to buy than to rent................

And according to some experts only 17.87% of people actually remain in one house for 25 years and that figure is declining by 24.88%. Experts agree that the average person moves every 4.017 years which means about 5 moves in the 25 year period and the cost of moving that many times (stampt duty, soliciotrs costs) will outweigh the 25k "saved."

Further, if the person who remains in a house 25 years has to replace the roof during their period of occupancy the "savings" will be substantially reduced, especially in areas where slate roofs or thatch are specified (Graded buildings).

The bottom line is that it is "nice" to own rather than rent/mortgage but when renting at the point in the cycle when house prices are at or near a peak the temptation to buy should be repressed.

Somehow I think maintenance is included in the equation and I also think that renters moving house will bring the average time in each dwelling down signifigantly.

[non-FTBer]

Well at the moment renting costs me:

• Rent: £625 pcm
  
• Maintennance: £0
  
• Ground rent/communal maintennance: £0
  Total: £625
  

If I bought the same flat then I'd be paying:

• Repayment mortgage (at 5% on 2003 purchase price of landlord): £916.46
  
• Maintennance: £100pcm
  
• Ground rent/communal maintennance: £150pcm
  Total: £1166.46
  

This is generous as I'm basing it on the price paid by the LL 3 years ago (although I expect it'd only be worth about the same anyway unless she found a mug to buy it).

Assuming my rent stays about the same (which seems likely as it has actually fallen over the years) then I am saving myself £541.46 a month which I save.

In the first 5 years of a mortgage I'd pay off only £10086.59 of capital.

In 5 years of renting I will save £32487 (even ignoring interest).

With interest of 3% net after tax that would be ~£35000

So in effect by using the same amount of my income for housing for rent + savings as I would spend for repayment mortgage + maintennance + costs I end up with over 3 times as much equity.

And putting in a higher deposit for a shorter mortgage term will mean I'll not have half as high a mortgage at that point in the future unless house prices rise by the difference (£35K - £10K = £25K) over the same 5 years.

So the only question is whether house prices will rise. If prices stagnate, fall or only rise by a few percent then I win by renting.

If prices rise by a fairly hefty figure each year then I might lose out, but I really can't see that happenning.

If you think prices will stagnate or fall then there really is no argument for rushing in to buy.

Of course if I see somewhere for 2001/2002 prices then maybe I'll buy.... but I'll probably have to wait for that

[dnd]

Rent, buy, regardless - this country is too expensive to live in - most of the post taxed money we earn is going to VI's

Thank you UK government - thanks to your refusal to release much need land over the years has disenfranchised a generation

IIRC 90% of the population live on 8% of the land mainly in big cities

I don't care what the Tories did to us in the past - this lot should be kicked out next time round....

[Smarter than the average bear]

If I bought the same flat then I'd be paying:

[*]Repayment mortgage (at 5% on 2003 purchase price of landlord): £916.46

[*]Maintennance: £100pcm

[*]Ground rent/communal maintennance: £150pcm

Total: £1166.46

Ground rent @ £150 per year, or just £12.50 per month, surely?

[non-FTBer]

Rent, buy, regardless - this country is too expensive to live in - most of the post taxed money we earn is going to VI's

Thank you UK government - thanks to your refusal to release much need land over the years has disenfranchised a generation

IIRC 90% of the population live on 8% of the land mainly in big cities

I don't care what the Tories did to us in the past - this lot should be kicked out next time round....

This is one of the effects of living in a country that has never had a proper revolution... land is controlled by the few, and the politicians are controlled by the same.

[Time to raise the rents.]

From Cupidstunt who thinks this is good for tenants:

http://www.thisismoney.co.uk/mortgages/mor...page_id=58&ct=5

Personally I think you should read the story before you make up your mind.

[non-FTBer]

Ground rent @ £150 per year, or just £12.50 per month, surely?

No. Scandalous charges.

£150 per month includes a ridiculous ground rent charge, maintennance of communal areas (big old building) and gardening & cleaning of communal areas and gardens.

I don't know how much of that £150pcm is ground rent and how much is maintennance.

But it seems quite expensive to me.

Having said that the gardens are very well kept with new flowers planted every year, and the cleaners are in the communal areas every few days.

[sign_of_the_times]

surely no genuine landlord would be promoting buying to a bunch of tenants ?

Edited June 12, 2006 by sign_of_the_times

[right_freds_dead]

TTRTT you always manage to miss the most cruical point.

which is preventing new buyers jumping into houses at current levels- the IR rate can rise

if it was a fixed 25 year term youd make sense..

[Sledgehead]

I'm disappointed that the article mentioned that the buyer owns at the end of 25yrs & the renter doesn't, so it's difficult to judge how accurate the research is. As we know here on the forum, the real comparison is rent & costs versus interest & costs. Paying off the loan isn't a cost, it is more to do with savings etc.

Work it out yourself TTRTR.

I phoned the ABBEY and asked this one: Tracy North, Abbey Media Relations: Tel: 0207 756 4199

How they had arrived at an initial rental yield. She says, quoting the report, which I include below for your delectation:

!¹Rental figures are calculated by assuming a 4.3% per annum inflation rate over 25 years""

I say, "no, you need to know the intial rental yield before inflation is of any use.

She says: " What is rental yield"

When I asked her at what rate the DEPOSIT was assumed to be invested over the 25 year period she LAUGHED. I asked why and she said it was RIDICULOUS to consider such things. She said they could not make ASSUMPTIONS about such things. I said, "well why make assumptions about inflation, or interest rates when 25 year fixes are not available. "

She still said it was ridiculous so I asked why not invest the money in a 25 year Gilt. She allowed me to do the calculation : £20k for 25 years @ 4.3% compounded = £57K : ie a figure ON ITS OWN big enough to knock out any of the advantages.

wHEN IT BECAME CLEAR SHE HADN'T A CLUE WHAT THE REPORT IMPLIED i TOLD HER TO SIT DOWN WITH THE BODS THAT WROTE THE REPORT AND GO THROUGHT THE FIGURES. tHEN SHE WOULD SEE THAT MUCH OF IT WAS NOTHING BUT "********".

sHE HUNG UP. sOME PUBLIC RELATIONS LADY SHE WAS.

ps sORRY ABOUT FORMATTING BUT i REALLY CAN'T SEE MUCH OF THIS AND CAN'T BE BOTHERED TO EDIT IT.

Oh By the way, she reckoned you'd own the property at the end of the period. I pointed out that the costs portrayed meant assuming very low purchase prices. I asked if she could tell me waht any of these were. She was cagey . Real cagey. All the way.

44/06 Embargoed until 00.01, 12 June 2006

Buying still cheaper than renting – but not everywhere

- Renters turn the tables on buyers in some areas of the country -

Abbey’s annual Rent vs Buy report shows that homeowners are still better off than renters by an average £24,372¹ (six per cent). However, for the first time, the cost of owning a property over a 25-year period is higher than renting in some areas of the country². The biggest savings for buyers can be found in east Scotland (£81,157 = 20 per cent) and west Scotland (£69,779 = 20%). The biggest savings for private tenants can be found in Wales (£27,416 = 8 per cent) and the south west (£21,009 = 5 per cent). However, this does not take into account the fact that people who have bought will own a mortgage-free property at the end of their mortgage term.

Previous Abbey Rent vs Buy reports show that the gap between buying and renting has been narrowing each year. House price inflation of four or five per cent over the past year has tipped the balance towards tenants, but homeowners still have the advantage in the end as a homeowner will own the property outright at the end of a mortgage term.

Abbey’s report showed that:

The average cost of buying a property over 25 years is £379,341 compared with £403,713 for renting.

The average saving (£24,372) is approximately equivalent to an average year’s salary³.

The most expensive area to buy is Greater London and the most expensive area to rent is the south east, narrowly beating Greater London.

The cheapest area to buy is west Scotland and the cheapest area to rent is Northern Ireland.

The biggest savings for homeowners are in east and west Scotland, where homeowners are 20 per cent better off than renting.

Sue Hayes, Director of Abbey’s Product Marketing said: “In the short term, a private tenant might be up to £1000 a year better off than someone who had bought a property in areas such as Wales and the south west. However, in the long term, paying rent is simply lining landlords’ pockets and tenants wouldn’t even have a property to show for it. Aspirations for home-ownership in the UK remain high, which is why mortgage lenders must take a flexible view to affordability. First-time buyers might find it difficult to get on the property ladder, but they are better off in the market than out.”

UK Highlights:

Type of house Total cost of renting Total cost of buying Saving Percentage saved from buying versus renting

Two bed flat £308,714 £248,627 £60,087 19%

Three bed terrace £350,141 £306,003 £44,138 13%

Three bed semi £407,675 £377,889 £29,786 7%

Four bed detached £548,325 £584,848 -£36,523 -7%

Homeowners do not have landlords who can serve notice to vacate a property or put up rents and administration charges. Private tenants are also much more restricted in terms of their lifestyle or how they can modify their property. Owning a property gives financial flexibility in terms of trading up, downsizing or releasing equity.

Abbey believes that young people planning to buy should save up as big a deposit as possible to get the best start. Its research shows that over 90 per cent of first-time buyers intend to save a deposit, but they are being held back by low salaries and repayments on credit cards and loans.

Despite the savings that can be made compared with renting, Abbey warns that buying a home should not be considered a guaranteed investment, even over 25 years. It is difficult to predict how house prices will move over such a long period. In the last 15 years, house prices have fallen as well as risen, and interest rates have fluctuated by more than ten per cent, showing that repayments can vary significantly. Borrowers must therefore think carefully about buying a home and take good advice on choosing the right mortgage - weighing up choices between fixed and variable rates as well as fees and costs.

- Ends -

For further details, please contact:

Joe Wiggins, Abbey Media Relations: Tel: 0207 756 4211

Tracy North, Abbey Media Relations: Tel: 0207 756 4199

Notes to Editors:

¹Rental figures are calculated by assuming a 4.3% per annum inflation rate over 25 years. Buying costs are based on a 90% repayment mortgage at a fixed rate of 5.25% over 25 years and include average maintenance costs at 4.3% per annum inflation rate (source: ONS Family Spending Survey 2002-2003).

²Survey conducted by Abbey using 144 regional estate agents across the UK in May 2006.

³Source: payfinder.com

This report is not intended in any way to provide guidance or advice on the future performance of the housing market.

Edited June 12, 2006 by Sledgehead

[othello]

More VI spin, but if it is true, BTL landlords - look out for an exodus of tennants... better start selling up now!

[Sledgehead]

More VI spin, but if it is true,

Do the math

[A Fool & His Borrowed Money]

Abbey said that for the first time since it started doing the survey five years ago, it was cheaper for people in certain regions to rent than to buy.

I tend to agree,

Five years ago prices were expensive compared to now, hence why its now currently cheaper to get a mortgage compared to renting

[munro]

Sue Hayes, Director of Abbey’s Product Marketing said: “In the short term, a private tenant might be up to £1000 a year better off than someone who had bought a property in areas such as Wales and the south west. However, in the long term, paying rent is simply lining landlords’ pockets and tenants wouldn’t even have a property to show for it. Aspirations for home-ownership in the UK remain high, which is why mortgage lenders must take a flexible view to affordability. First-time buyers might find it difficult to get on the property ladder, but they are better off in the market than out.”

This report is not intended in any way to provide guidance or advice on the future performance of the housing market.

WTF?

[Guest]

Mr Rents: Why do you like to encourage people to buy?

Your a landlord?

[apom]

I wonder how many variations of this story will appear in the papers today or tomorrow? IMO they have made a mistake by failing to mention the extreme saving during the 2nd 25 year period, where the full benefits of ownership are felt.

http://www.sky.com/skynews/article/0,,30400-13527952,00.html

'Save Cash By Buying'

Updated: 06:51, Monday June 12, 2006

People who opt to buy their own home rather than rent it can save an average of nearly £25,000 over 25 years, research has claimed.

The cost of buying and maintaining a property over 25 years adds up to £379,341, while renting one for the same period costs around £403,713, according to High Street bank Abbey.

As a result people who choose to get on to the property ladder will be an average of £24,372 better off than renters after that period of time.

Abbey said that for the first time since it started doing the survey five years ago, it was cheaper for people in certain regions to rent than to buy.

However, this did not take into account the fact that those who bought would own a mortgage-free property after 25 years.

Abbey said people who opted to rent in Wales would be an average of £27,416 better off after 25 years than homeowners, while tenants in the South West would save £21,009 compared with if they had bought their own place.

It said the gap between renting and buying had been narrowing each year as a result of strong house price inflation increasing the cost of getting on to the property ladder.

The difference between buying and renting across the UK is greatest for a two-bed flat, which costs just over £60,000 or 19% less to buy and maintain over 25 years than to rent.

But people wanting to live in a four-bed detached home would actually save £36,523 or 7% by renting the property rather than buying it, although they would not own their home at the end of the 25 year period.

Quality... Prices are on their way down already.....

Its not about the buying that we,are discussing...

(it's about the timing..)

£160,000 is a fair to low mortage...? agread.. todays prices..

Montly repayment mortgage = £1043.02 at long term average IR (rent for same property is £600)

mortgage cost over 25 years is = £312,906

rental cost is £180,000

so their figures do lie...

However, the mortgage does mean that you have actually bought the property..

does not allow for any repairs, but the loan won't inflate..

anyway, TTRTR's your being lied to..

We are all going to buy mate.. thats why we are here..

[Without_a_Paddle]

Well at the moment renting costs me:

• Rent: £625 pcm

• Maintennance: £0

• Ground rent/communal maintennance: £0

  Total: £625

If I bought the same flat then I'd be paying:

• Repayment mortgage (at 5% on 2003 purchase price of landlord): £916.46

• Maintennance: £100pcm

• Ground rent/communal maintennance: £150pcm

  Total: £1166.46

This is generous as I'm basing it on the price paid by the LL 3 years ago (although I expect it'd only be worth about the same anyway unless she found a mug to buy it).

Assuming my rent stays about the same (which seems likely as it has actually fallen over the years) then I am saving myself £541.46 a month which I save.

In the first 5 years of a mortgage I'd pay off only £10086.59 of capital.

In 5 years of renting I will save £32487 (even ignoring interest).

With interest of 3% net after tax that would be ~£35000

So in effect by using the same amount of my income for housing for rent + savings as I would spend for repayment mortgage + maintennance + costs I end up with over 3 times as much equity.

And putting in a higher deposit for a shorter mortgage term will mean I'll not have half as high a mortgage at that point in the future unless house prices rise by the difference (£35K - £10K = £25K) over the same 5 years.

So the only question is whether house prices will rise. If prices stagnate, fall or only rise by a few percent then I win by renting.

If prices rise by a fairly hefty figure each year then I might lose out, but I really can't see that happenning.

If you think prices will stagnate or fall then there really is no argument for rushing in to buy.

Of course if I see somewhere for 2001/2002 prices then maybe I'll buy.... but I'll probably have to wait for that

So don't buy a flat with 150pm service charges.

If your loan is 157k repayment at 5% then you will pay 918pm

Compare this to your 625pm rent.

On the first payment you will be paying 654pm interest (dead money) and 264pm goes towards reducing the debt.

After just three years the interest part of the monthly repayment is below your current rent (i.e. 611pm) 306pm goes towards reducing the debt (i.e. it's not dead money like the interest part of the payment).

After 5 yrs the dead money interest is down to 579pm. How much will your rent cost in 5 years? 725pm?

OK you pay maintenance on a property, but you can DIY a lot of this at reduced cost.

You should really take these figures into account in your comparison.

(I'm not saying you SHOULD buy, but maybe you should give the figures more of a chance)

Edited June 12, 2006 by Without_a_Paddle

[Stanley]

This was on Radio Five early this morning at about 10 to 8. I am sure it was reported as it is now cheaper to rent than buy over 25 years.

It went

"the cost of owning a property over 25 years is for the first time higher than the cost of renting..in some parts of the country at least."

in the short term it is actually cheaper to rent rather than buy in 5 areas....wales, the south west, the north, east anglia and greater london.

The biggest saving for renters would actually be around 27k over 25 years.....or private tenants being a thousand pounds a year better off.

The guy from abbey then just spouted loads of guff about renting being dead money...

Don't know how this thread got so twisted but it was about renting being the better deal and not the other way round. After all why would that be a story, everyone would assume it to be obvious anyway?