Is renting becoming cheaper than buying?
Abbey have been comparing the cost of renting with buying a home for five
years: and the news is, perhaps not surprisingly, it’s cheaper to buy over
the 25 year course of a mortgage than rent. But that could be changing.
For the first time since it’s been carrying out the survey, Abbey has found
that in some areas it’s now cheaper to rent.

The best place to rent is Wales- 8% less over 25 years than buying, while
the survey also found that the South West, North and East Anglia are
cheaper too. But, perhaps more significantly, Great London is cheaper -
although only just. It’s 1% less expensive to rent than buy, which works out
that renters in the capital save £8,188 over a 25 year period compared to a
buyer.

But for the average home homeowner, buying is still cheaper – the cost
of buying and maintaining the average home over 25 years is £379,341,
whereas renting costs £403,713.

There are two pieces of information missing from this study. The obvious
one: the report does not take into account any capital gains the home owners
might have enjoyed over that same period. In a world in which most of us
are getting increasingly worried about our pensions, the home we live in
could also be our nest egg for our future. And of course, in recent
years, the increase in the value of houses has led to people topping up
their mortgages and spending. The press and property bulls have, of course,
leapt on this point. After all it’s deeply ingrained into the British psyche
that your home is the best investment you can make.

But actually it’s not quite as simple as this. We are not sure how the
Abbey calculated the cost of paying for a home – and whether they included
the cost of the deposit. But whichever way you look at it, there is an
opportunity cost of buying a home too. The deposit could be invested
elsewhere and over 25 years would no doubt accumulate dramatically in
value.

Meanwhile, a new report from Home.co.uk has found that asking prices are actually
falling across London. While the media have been focusing on the
remarkable popularity of homes selling for over £4mn in some of the more
upmarket areas of London, apparently asking prices across the whole of
Greater London have been falling quite rapidly.

In May 04 the average asking price in Greater London was £330,000, today
it’s nearer £300,000 – meanwhile in central London average asking prices are
virtually unchanged.

But, while the Londoner might be concerned, the North East appears to be
the real trouble spot. Until recently, this regional market had been one of
the strongest performers and had not shown a substantial price correction
following the 2003/4 property boom. Asking prices only recently reached a
maximum in November 2005, approximately 17 months after peaking in London.
But, according to Ask.co.uk, asking prices in the North East fell by 4.8% in
the second quarter of 2006. And Ask.co.uk speculates that this could
represent a turning point – with Yorkshire , Wales and the North West
following suit.

© Investment & Business News 2013