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Renting is Cheaper than Buying - But is it Financially Better?

A recent study into the cost of renting verses the cost of a mortgage over a repayment period of twenty-five years has shown that in some areas of the country, it actually works out cheaper to be a tenant than it does to be on the property ladder.

The areas in which it was found to be cheaper to rent were Wales, the North, East Anglia, London and the South West.

The savings that can be made, with the study based upon average prices and a twenty-five year repayment period with interest rates of 5.5%, are large in many cases – the highest savings seen in Wales, some £27,416 over the full period. The South West wasn’t far off this figure at £21k of savings when compared to the mortgage costs.

Five of the twelve regions showed that on average people renting would be better off financially than those with mortgages, but what the figure do not show is that those buying a home will own that equity at the end of the 25 year period, whereas those renting will have nothing to show for the money that they have paid out.

When you do take this into account, the person who opted to buy will have ownership of a house worth in excess of £180,000 whereas the renter will have at most paid out £27,000 less during the period of time that it took the buyer to repay the mortgage. When all this is considered, the person who opted to buy rather than rent ends up over £150,000 better off – and this is when you consider the current best-case scenario for the person renting.

Weighing up whether to rent or to buy comes down in most cases to personal preference, rental is cheaper initially but in the long run doesn’t give anything in return, whilst buying is costly at the start but will end with the ownership of the home.