Renting v Buying - Which Is Cheaper?

Posted on Aug 23, 2023. by NTI

Zoopla has reported this week that it is now cheaper (on average) for the first time in the UK to rent than pay a mortgage.  Surely there must be more to it, otherwise the buy-to-let mortgage business looks pretty broken.  Well as always with 74% of statistics that you ever read (including that one) they are either wrong or the devil is in the detail.
Firstly, Zoopla have based their numbers on a first time buyer obtaining a 30 year mortgage at 6.2% with a 15% deposit.  Yes, you read that right, a first-time buyer with a deposit of 15% - thank you the bank of Mum and Dad no doubt as for an average house price of £263,000 that is a deposit of £39,500.

Another problem with the base line assumptions is Moneyfacts are currently reporting the average two-year fix is 6.76%, dropping to 6.24% for a five year fix.  Therefore, even a cursory glance at the figures suggests the mortgage payment is likely to be higher.

And then we come to the average across the UK.  As you can imagine, the national figure is skewed massively by London and the South East, where the difference between the two is at its greatest, and the monthly figures involved are too, both by significant margins. 

Mr Donnell, head of insights at Zoopla, (which surely can’t be a full-time role) said he expected mortgage rates to reduce and continued growth in rents to see the position revert as 2023 draws to a close.

One option for avoiding paying either a mortgage or rent, is to be a CEO of a FTSE 100 company.  A recent report by the unimaginatively named High Pay Centre confirmed the median pay rise 16% to £3.91m in 2022, a staggering 118 times higher than the typical UK worker on £33,000.

The top earner was Sir Pascal Soirot, chief of (since 2020) household name AstraZeneca with £15.3m while the head of BAE Systems took home the silver medal and £10.7m.  The High Pay Centre report said the rise was partly due to bosses having “strong incentive pay awards tied to profitability and share prices”.  AstraZeneca’s reply was that Sir Pascal’s pay was 12% fixed and 88% subject to performance.  AstraZeneca has seen a share price rise of 81% in the last five years.

The TUC said the report was a “land of grotesque extremes” and “we need an economy that delivers better living standards for all” whilst presumably copying Sir Keir Starmer into their response with a polite request to win the next election.

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