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Additionally Zoopla statistics said that because of the shortage of mortgages and difficulties faced by first-time buyers, the demand on private rented housing was driving prices up. Figures from CBRE research and Which? however suggest that renting is the cheaper option.
No given set of data and research will be a perfect measure of whether a person is better off renting or buying. A buyer accrues wealth on equity and house price inflation whereas a renter, who puts money into a savings account, will gain on interest (money otherwise used for a deposit and maintenance costs). The economic environment holds the fate of whether buying or saving will win out over a set
period of time. The CML carried out a piece of
research which revealed that the key to paying less for accommodation hinged on one question. Can you raise a deposit?
NEITHER A BORROWER NOR A LENDER BE Mortgage finance remained the single greatest barrier to home ownership with 42% of all UK adults between 18-34 saying the reason they couldn’t buy a property was because they were unable to afford a deposit, a YouGov poll commissioned by Countrywide revealed. Brokers however have an
indispensible advantage when it comes To buy, or not to buy by
James Tatch, analytics manager for the CML
The CML conducted research which looked at the comparative costs of owning and renting, and sought to address one very real question that faced the would-be home-owner: “To buy, or not to buy?” In real life only the individual can make the right choice about the answer to that question but I took a long, hard look from all angles at the relative costs of owning versus renting, using detailed new data from the Valuations Office Agency and the CML’s own regulated mortgage survey. While recently published research
from other sources has credibly argued that typical mortgage payments are currently cheaper than rents, other research has credibly argued that home-ownership is still the financially more costly option. So why is this? There are two crucial factors that
30 MORTGAGE INTRODUCER APRIL 2012
make a big difference to how you perceive the relative costs. 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 and how much a notional 100% mortgage payment would be 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 it is certainly not the case that one tenure offers
a clear financial “win” over the other in terms of the kind of housing that the same given monthly outlay can achieve for a household. For the UK as a whole, average
repayment mortgage monthly payments are £176 per month more expensive than renting a comparable property. Interestingly, however, monthly rents are £176 per month - exactly the same amount - more expensive than average interest- only payments. While this is simply a statistical coincidence, it does demonstrate that there is a certain equilibrium to the costs of renting and home-ownership that does not make one or the other the clear winner in the monthly affordability stakes.
Deciding whether to rent or buy will be a personal decision for consumers that will depend on a range of factors including issues around affordability, flexibility and stability.
With the economy causing the
current constrained mortgage market it is natural that consumers who are unable to buy will turn to renting until they can fulfil their home owning aspirations.
www.mortgageintroducer.com
to getting their client the deal that’s best for them: whole of market advice and knowledge of the industry.
They can make the mountainous task of raising a deposit feel more like a speed bump than a brick wall. The swiftest way to get a prime
borrower a deal is a low deposit deal. High 95% LTV deals exist from various building societies which many consumers are unaware of and won’t be able to find on their high streets. High LTV deals however are still relatively rare. The government has now intervened and increased supply with the recently launched NewBuy mortgage indemnity guarantee scheme which provides 95% LTV NewBuy deals on freshly built homes.
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