Is Renting a Waste of Money?
Posted by admin Fri, 23 Nov 2007 14:30:00 GMT
It's often said in the media that "renting is money down the drain" or that "rent is dead money". This is true, to the extent that you never get the money back. But the same can be said of mortgage interest, which for most people makes up a significant proportion of their mortgage payments. In fact, on a 25 year repayment mortgage, nearly 80% of the mortgage payments in the first year will be interest - money down the drain.
On this basis, a fair comparison between the cost of renting and buying is to compare the monthly costs of renting versus the monthly costs of an interest-only mortgage. The graph below shows the average UK monthly rent and the average UK mortgage interest payment, based on an interest-only mortgage on the average house price, at average mortgage interest rates. The figures used are taken from the DCLG, CML and Nationwide.
As can be seen from the graph, the costs of renting versus buying have been pretty well matched over the last decade, up until a few years ago. Now, thanks to the rapid rise of house prices and a slight increase in mortgage rates, it is around 1/3rd more expensive to buy.
