Figures suggesting buying a home is cheaper than renting are flawed because they do not include all the costs, claims the Council of Mortgage Lenders.
Taking a side swipe at the Lloyds Banking Group, and the Halifax and Bank of Scotland specifically, the trade body for mortgage lenders states that statistics showing renters pay more than buyers living in an identical property are wrong.
The reason, says the CML, is economists at Lloyds do not adjust their figures to account for deposits.
The CML argues that a case can be made that renting is cheaper than buying and vice versa, depending on which figures are included in the calculations.
The basic problem, according to the CML, is the average first time buyer pays a mortgage on 80% of their home’s value, while a renter shells out rent on 100% of the property. If the figures are not adjusted, one looks more expensive than the other.
New data from The Valuation Office matched with CML lending figures reveals the error when mortgages are adjusted for 100% of the value of a home.
“These results demonstrate that, depending on whether or not a borrower chooses to view the deposit and/or repayment elements of their purchase as costs, either rent or mortgage could come out as the cheapest option for any given consumer,” says the CML.
“The average mismatch between the average total mortgage cost at 100% loan to value versus the comparable local rent. For the UK as a whole, total capital-plus-interest payments are, on average, £176 per month more expensive than renting a comparable property. Compared against mortgage interest payment only, rent is on average more expensive by the exact same amount.”
The CML goes on to say whatever the basis for comparing housing costs, over the long term the odds are weighted in favour of owning a home.
“Mortgage payments are anchored to a nominal debt and so decrease in real terms over time, while after the mortgage is paid off, the costs other than maintenance cease. Rental costs continue indefinitely – and are broadly linked to house prices so do not decrease in real terms,” said the report.
Link to full report: http://www.cml.org.uk/cml/filegrab/01-2012-to-buy-or-not-to-buy.pdf?ref=8172 [Opens in new window]