MONEY COMMENT
It's Still Cheaper To Buy Than Rent

By Cliff D'Arcy
April 24, 2003

The latest annual report from Abbey National (LSE: ANL) into buying and renting property reveals that, over the long term, it's almost always cheaper to buy your home rather than rent.

Across the UK and over 25 years, it's around 24% cheaper to buy than rent, which amounts to a healthy average saving of £80,250. The average saving was 30% in the 2002 survey - it has come down due to a massive surge in house prices over the last year or more.

Have a look at this table:

Type of House           £ to rent  £ to buy  Saving  % Saving

Two-bedroom flat          277,819   185,557  92,262       33%
Three-bedroom terraced    302,890   213,042  89,848       29%
Three-bedroom semi        314,884   238,338  76,546       24%
Four-bedroom detached     492,238   429,884  62,354       13%
Average                                      80,250       24%

Here are Abbey's assumptions for the 25-year period: renting: inflation at 4%; buying: 90% repayment mortgage at a fixed interest rate of 5.5%; both: average maintenance costs included, increasing at 4% a year.

One very obvious observation is: the smaller your property, the more you'll save by buying, both in cash and percentage terms. So, if you were renting a small flat over the long term, usually you'd be miles better off by buying it. Also, the savings are much lower at the top end, suggesting that it may be better to rent rather than buy some large properties.

In Greater London, the competitive buy-to-let market, falling rents and slowing house-price growth have combined to reduce the average saving on all homes to £78,805 (14%). For the South East, it's £67,438 (15%).

Across the country, the largest saving (both in cash and percentage terms) is found in West Scotland, with an average saving of £147,902 (47%). Thanks to large hikes in property prices in recent years, the smallest saving is in the South West: a mere £16,305 (5%) over 25 years.

Of course, the buying figures are flattered by the fact that mortgage rates are currently at their lowest level since 1955. If interest rates were to resume their cyclical pattern of rising and falling, renting a home could become far more attractive in the future. Nevertheless, the conclusions of this report will cheer up both British homeowners and those thinking about buying.

More: Seven Signs Of A Housing Crash | Visit our Homebuying Centre