Gap between the cost of renting and buying narrows - 20/06/05

Homebuyers still 11% better off than tenants
£37,000 cheaper to pay a mortgage than to rent over 25 years

Abbey's annual survey into the difference in cost between renting and buying shows that homebuyers still have the upper hand - but the gap is at its narrowest yet. On average, a homebuyer will pay £37,650 (11 per cent) less over 25 years than renters. Last year, the equivalent saving was £49,797, or 16 per cent, so the difference has reduced.

Over the past year, house prices have grown by 12.6 per cent* and interest rates have risen by 0.75 per cent. This has increased the cost of purchasing relative to renting, so narrowing the gap.

The Abbey report shows that:

• The average cost of renting¹ a property in the UK over 25 years is £364,499, compared with £326,849 for buying² a property.



• The average saving (£37,650) is equivalent to more than one and a half times the average annual UK salary of £22,000**



• The most expensive areas to rent or buy are still Greater London and the south east. However, buying a property in Greater London rather than renting could still save someone an average of £25,100, or 4 per cent, over 25 years.



• The cheapest area to rent a property is the north west, although people could still save £42,212, or 14 per cent, over the long term, if they choose to buy a property instead.



• The cheapest area to buy is the west of Scotland, where the average saving to be made by homeowners over 25 years is 32 per cent, or £112,616.



• The biggest single saving that could be made by buying rather than renting in any area of the UK is also in the west of Scotland where, on average, the buyer of a two bedroom flat could be £136,791, or 46 per cent, better off over 25 years.



• Even in the north, where the gap is the narrowest, a homeowner could still spend on average £11,692 less than a tenant over the long term.

Gary Hockey-Morley, Abbey's Director of Mortgages, said: "Buying a property has become harder for many people in recent years with average property prices doubling since the millennium. Despite this, buying still remains cheaper in the long run compared with renting.

"Clearly, one of the main attractions for buyers is the freedom that comes from having your own property and the ability to renovate, decorate and personalise your own home as you want. The fact that it is also cheaper to buy rather than to rent only enhances the attractiveness of being a homeowner, whilst tenants line their landlords' pockets.

"The biggest benefit of owning a property over renting is that your home is also an asset, which can appreciate in value. Whilst nobody should bank on this as a 100% certainty, owning a property does give the homeowner more options than the rental tenant in terms of trading up, downsizing and releasing equity."


UK Highlights

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 extremely 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.

1. Figures are calculated by assuming a 4.6% per annum inflation rate over 25 years (source: ODPM).



2. Buying costs are based on a 90% repayment mortgage at a fixed rate of 5.5% over 25 years and include average maintenance costs at 4% per annum inflation rate (source: ONS Family Spending Survey 2002-2003).

Survey conducted by Abbey using 144 regional estate agents across the UK in May 2005.

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