TO BUY, OR NOT TO BUY

By Jeremy Gates, PA Features

If house prices are about to fall, while interest rates remain comparatively high against the rate of inflation, the correct financial decision in many parts of Britain might be to rent a home in the short term, rather than buy one.

If house prices are about to fall, while interest rates remain comparatively high against the rate of inflation, the correct financial decision in many parts of Britain might be to rent a home in the short term, rather than buy one.

That is the conclusion of the annual UK Rent versus Buy Index from Abbey Mortgages which calculates that it is now only £5,811 cheaper to buy, rather than rent, over 25 years.

Abbey claims the average cost of a home to a buyer who holds a mortgage for 25 years - assuming a lifetime mortgage rate of 6.5% - is £437,925. Somebody opting to rent a home over the same period would pay out £443,736.

For the purposes of comparison, estate agents across the country had to provide both the price and rental cost of four different home types- two-bedroomed flat, three-bedroomed terraced house, three-bedroomed semi and four-bedroomed detached.

When the Abbey last published a Rent versus Buy Index, in June 2006, the advantage for owners was measured at £24,372. Rising mortgage rates, and weakening house prices have drastically reduced the gap.

In some areas of the country - including Northern Ireland, Wales and the North-West - Abbey reckons renters are living more cheaply than buyers.

In Wales, for instance, renters pay £394,665 against £455,820 paid by owner occupiers. In Northern Ireland, renters pay only £392,000 against £572,814 paid by owner occupiers, following an amazing 50% surge of prices in the last two years.

In Yorkshire, London and the Midlands, the costs of either option are virtually the same. In Greater London, for instance, the average cost of buying is £728,410 against £717,952 paid by tenants.

The biggest saving for buyers is in South-East England: owner occupiers pay out just under £460,000, while tenants pay £552,723.

In Northern England, buyers are more than £68,000 better off: £305,000 against £372, 941.

The best place to be a buyer is East Scotland where buyers pay out £450,530 against £568,130 paid by tenants - a gap of more than £117,000. In West Scotland, the gap in favour of buyers is much smaller, at just over £28,000.

However, as the Abbey is always obliged to point out when it publishes these figures, it is making a comparison only of day-to-day running costs.

What its calculation always leaves out is the capital gain - enjoyed by owners, but not renters - at the end of 25 years.

Says Nici Audhlam-Gardiner, Abbey Head of Mortgages: "While on a month-to-month basis in some areas, it is cheaper to rent than buy, at the end of 25 years a homeowners actually has a house whereas the renter has nothing.

"In addition, homeowners benefit from any further house price rises as the value of their equity increases over time."

There is one other major argument which favours buying: very few mortgages are ever allowed to run for 25 years, as most owner occupiers cash in profits much sooner to move up the housing market. Many buyers on good incomes use spare cash to pay off their mortgage completely well inside the traditional 25-year lifespan.

However Annette Martin, the Bath-based mother who has launched a website to help young people team up as co-buyers to get their first home, says the Abbey figures will not deter her customers from wanting to buy.

"Although we get blips from time to time, there is a pretty deep feeling that house prices only go upwards over the longer period. It all comes down to a simple question of supply and demand."

:: INFORMATION: Young co-buyers are listing their particulars on www.letsbuyahouse2gether.com. The website hopes to match-make people seeking the same type of property in the same area, and will also list homes for sale, free of charge, in the coming weeks.

The website, founded by Annette Martin and web designer James Burfield, is linked with Mogers Solicitors and its local Bath Building Society to give applicants expert legal and loan advice on co-buying.

:: WILL ENERGY INSPECTORS SINK OPEN FIRES?

Although a roaring open fire in the living room is generally seen as a major selling point, could they soon be threatened by the Eurocrats because they are an inefficient use of energy?

As they compile Energy Performance Certificates (EPC) which are required by EU law on all properties for sale from 2009, and have been used by Ministers to justify Home Information Packs (HIPs), Domestic Energy Assessors (DEAs) are not always impressed by the sight of flames licking up the chimney.

Says Jo Aldridge of Stacks Property Search and Acquisition, a specialist 17-branch househunter which tracks down suitable properties for buyers throughout the UK and Spain: "An open fire does raise the whole green question...Consider how much fuel it consumes, how little heat it gives out, how much draught it causes and have a quick reality check.

"Wood-burning stoves are rapidly becoming a preferred option", says Ms Aldridge. "They use less fuel, give out more heat, cause no draught and often heat water or cooking in addition to being a simple heat source."

Sounding a bit too nanny state-ish for comfort, Ms Aldridge warns: "In a lovely old period house, by all means look at gorgeous old fireplaces.

"But don't get so carried away that you forget to check out all the insulation, and just how draughty those original sash windows are."

However, Trevor Kent, Gerrards Cross-based estate agent and long-term critic of HIPs, booms a suitable retort: "Any criticism of open fires is utter poppycock, because I believe they offer considerable 'eye candy' value as people assess a living room.

"As for energy efficiency, the big argument for open fires is that they consume fuel which can often be scavenged in open places, woodlands or urban skips. What could be more energy efficient than that?"

:: BUYERS ARE TRIMMING BACK BIDS

Although the supply of property reaching estate agents' books has fallen dramatically since August, there are signs demand is falling too as ingredients of a "buyer's market" slot swiftly into place.

Figures from the Royal Institution of Chartered Surveyors (RICS) reveal that although new stock on estate agents' books rose by 8.8% in October, the number of newly-agreed sales was lower than at any time since April 1999. The Council of Mortgage Lenders also notes a sharp drop in new loans, with remortgaging down by a lesser amount.

Over the next three months, says the RICS, a clear majority of its surveyors expect house prices to fall.

Henry Pryor, founder of property website Primemove.com which lists 760,000 individual houses, says: "We have seen the supply of property for sale drop by up to 40% since August.

"Whilst there have been notable exceptions, buyers now offer 5% - 10% below asking price. Those who have to sell because of divorce or relocation, for instance, should take an agent's advice, and price a property for the current market, rather than the frothy market of the Spring."

Pryor says vendors should do their utmost to get a sale by Christmas. If they need to go into 2008, they will probably need a new marketing approach and lower asking price.