To buy or not to buy? CML research looks at the question

By Bridging Loan Directory -


New CML research published today looks at the comparative costs of owning and renting, and seeks to address one very real question that faces the would-be home-owner: “To buy, or not to buy?”

Of course, in real life only the individual can make the right choice about the answer to that question, but CML analytics manager James Tatch takes a long, hard look from all angles at the relative costs of owning versus renting, using detailed new data from the Valuations Office Agency and the CML’s own Regulated Mortgage Survey.

While recently published research from other sources has credibly argued that typical mortgage payments are currently cheaper than rents, other research has credibly argued that home-ownership is still the financially more costly option. So why is this?

According to the CML, there are two crucial factors that make a big difference to how you perceive the relative costs. If you ignore the need for a hefty deposit, buying is cheaper than renting a similar property across all borrowing types, and across all regions of the UK. But that is not surprising when you take account of the fact that a typical deposit might be 25%, so the borrowing costs relate to only 75% of the property’s value, whereas a tenant will be paying rent covering 100% of the property.

If you factor in the deposit (and how much a notional 100% mortgage payment would be), then the cost picture changes. Under this scenario, buying becomes more expensive than renting for two thirds of first-time buyers on a capital-and-interest repayment basis. But buying is still cheaper than renting for around four-fifths of first-time buyers on an interest-only basis.

This means that, for any given consumer, it is possible that property could be cheaper to rent or cheaper to buy, in terms of monthly cost. Owners face maintenance costs, that tenants do not. But it is certainly not the case that one tenure offers a clear financial “win” over the other in terms of the kind of housing that the same given monthly outlay can achieve for a household.

For the UK as a whole, average repayment mortgage monthly payments are £176 per month more expensive than renting a comparable property. Interestingly, however, monthly rents are £176 per month – exactly the same amount – more expensive than average interest-only payments. While this is simply a statistical coincidence, it does demonstrate that there is a certain equilibrium to the costs of renting and home-ownership that does not make one or the other the clear winner in the monthly affordability stakes.

CML director general Paul Smee commented:

“When you look at the monthly costs of buying and renting, it seems to be six of one and half a dozen of the other. Deciding to buy a home is as much an emotional decision as a financial one. Most people aspire to home-ownership and value the security and control it can confer. But others will say that the flexibility of the rented sector should not be under-estimated either. In the end, deciding whether and when to buy is a personal decision. It should be reassuring to people to see that, on a monthly basis, the tenures appear to be broadly neutral in terms of the costs they impose.”