With house prices skyrocketing, the question of whether buying or renting is more convenient is hanging over our heads more and more. However, answering this question is not so simple. The truth is that there is no single solution, as it will depend on each household’s personal and economic situation.
Buying or renting a house – which is better in 2024?
The truth is that this question is somewhat more complex than it appears. While it is true that buying a property gives you ownership of a home that you can sell in the future to earn money, you need some initial savings to do so. Few, if any, banks today offer 100% mortgages, so if you don’t have around 20% saved up, buying becomes more complicated.
“It depends on your financial situation. If you have the money to take out a mortgage – approximately 20% of the property value – I always recommend my clients to buy,” says Agustín Escalera, director of Sunny Homes Marbella.
“Monthly mortgage repayments are almost always going to be less than rent. Furthermore, in areas such as the Costa del Sol, where long-term rentals have lost ground to holiday rentals, prices are sky high, which extends to the rest of Spain,” adds Agustín.
As for renting, it offers flexibility and requires less initial savings. If the property does not meet your expectations, you can move out. However, renting is not always the more affordable option in the long term, and although it is popularly said that “renting is a waste of money”, this is not necessarily true for everyone.
Your choice should be based on your financial situation, needs and lifestyle. Some people may feel that renting gives them freedom and flexibility, while others may see buying as an investment and a valuable asset for their future.
Things to consider when deciding whether to rent or buy
Spain is traditionally a country of homeowners. The percentage of people living in rented accommodation in Spain is below the European average, although this figure has increased in recent years, due to changes in the mortgage sector.
Several factors have to be considered when deciding whether it is better to rent or buy, including your economic and employment situation.
To buy a house, you usually have to take out a mortgage. If you can pay cash for a house, buying is naturally the best idea. If this is not the case, when applying for a mortgage loan, you need to have saved approximately 30% of the value of the house (20% not financed by the bank plus 10% for taxes and expenses), as mortgages are granted for a maximum of 80% of the total value.
- Future plans to consider before buying or renting
Another key point when deciding whether to rent or buy is your personal and professional situation. Are you planning to move? Does your job involve moving to another city? If the answer is yes, you should rent. Buying a home, on the other hand, is a long-term commitment. The mortgage will tie you to the house for as long as it lasts.
On the other hand, you have to consider your employment and financial situation when taking out a mortgage. If you cannot pay the debts contracted with the bank, the house could be repossessed. Even if the scenario is good when buying the house, you must think if worse times could come. That’s why you should fix a mortgage that is easy to pay in risky situations.
One advantage of buying a house is that you can sell it if your personal or financial situation changes. Ideally, you should wait until you have made money on the transaction, but if you find yourself in trouble, you can always recover part of your outlay.
To find out which is best for you, you should be aware of the state of the market. If the rent is sky-high and the banking conditions are favourable, you may be better off buying, and vice versa.
It should be noted that the rental sector lives by the ‘law of the quickest’. The supply is limited, and the best flats are snapped up very quickly. A reasonably priced, quality home lasts only a few days. On the other hand, the property market is more reflective.
For example, Carolina is one of those people who has found herself in this dilemma. “I have been looking to rent a house for months. I work from home and have pets, so I wanted something that would allow me to live comfortably with a garden. After months of searching, the most suitable property wasn’t less than €900. In the end, I decided to buy. I pay €480 in mortgage, almost half what it would cost me to rent,” she told idealista/news.
On the other hand, if you notice that house prices are falling, you may want to wait to see if they continue to do so and, in the meantime, live in rented accommodation. However, you run the risk of someone else snapping up your property.
Calculate whether renting or buying is the best for you
Now you know all this information the next step is to do the maths. Which is better for you, buying or renting?
When is it better to buy?
Buying rather than renting can be considered a long-term investment. If you’re wondering why buy, you should know that, unlike renting – where monthly payments do not accumulate into a tangible asset – mortgage repayments contribute to the equity of a property. Over time, this asset can increase in value, which could generate a return in the event of a future sale. Moreover, once the mortgage is fully paid off, you no longer have a significant monthly expense, providing future financial security, especially in retirement.
Another advantage of buying is the freedom and independence that comes with homeownership. Homeowners can personalise, renovate or make changes to their property as they see fit without asking permission from a landlord.
When is it more cost-effective to rent?
Renting may be a better option than buying a house if:
- You can’t get a mortgage: rent is cheaper than a down payment on a house.
- You move around a lot: If you travel a lot or work for long periods away from home, renting allows you to move around more easily.
- If you want to buy but don’t have the money or can’t find the house you like, renting is a good option.
Rent-to-own, the best of both worlds?
Rent-to-buy is one option to consider if you’re on the fence. On the one hand, you can live renting the house you like with a view to buying it in the future while you raise the money needed to do so.
Also, when the contract allows, you can back out, and move to another house. On the other hand, you can buy the house if you raise the money first, and the owner will be obliged to sell it. Not to mention that part of the monthly payments will be deducted from the final price.
Which is cheaper, rent or mortgage?
Generally, the mortgage will have lower repayments than renting, as the loan granted by the bank is usually paid over many years, which lowers your monthly payments. However, interest will have to be paid on the mortgage, which is not the case with renting.
In addition, rental prices depend on the properties’ characteristics (surface area, condition, location, etc.), and you can find houses for rent for much lower prices than mortgage payments, but they are not usually be very attractive (they will be in poor condition, in very isolated areas, etc.).
Buying or renting a house as a young person in 2024
If you are young and have the financial resources to move out of your parents’, you should have questions in mind to help decide whether to buy or rent. Moreover, you should know that grants are available to buy a home. Here are some of the pros and cons of both options:
Buying a house when you are young
Some advantages of buying a house when young are:
- Long-term investment: Over time, the property value can increase, offering a return on investment.
- Stability: Once purchased, there is no risk of contract terms or unexpected rent increases.
- Independence: Greater freedom to alter and personalise the property.
On the other hand, buying a house when you are young also has certain disadvantages:
- Large initial investment: You need to have some savings and pay the interest on the mortgage.
- Responsibility: As the owner, you are responsible for all maintenance and repairs.
- Less flexibility: Selling and moving is often more complicated and costly than simply terminating a rental contract.
Renting a property as a young person
Some of the advantages of renting a house when you are young:
- Flexibility: It is easier to move if personal or work circumstances change or you want to explore a new place.
- Fewer initial responsibilities: There is no large initial outlay, and maintenance is generally the landlord’s responsibility.
- Try before you buy: Renting allows you to experience different areas and housing types before making a long-term commitment.
Renting a flat when you are young can have some disadvantages:
- Expense: In the long run, you could spend more on rent than on a mortgage.
- Limitations: Landlords may have restrictions, such as no pets or limits on personalising the space.
- Instability: Rental contracts are often short-term and may not be renewed.
According to a calculation made by the idealista research office, Italy’s leading real estate portal, the purchase price of a house is equivalent to an average of 11.9 years’ rent in Italy. The number of rentals required to buy a home is one of the indicators that can most help to assess whether one market may be more attractive than another to rent or buy a home.
It is purely indicative and does not pretend to solve the perennial dilemma of what is more convenient between renting and buying, as a number of factors affect this choice, such as individual preferences, time expectations, fixed mortgage costs and taxes.
That being said, a comparison of purchase prices and rental costs shows that the more rental annuities are needed to pay for the house, the more attractive it will be for the tenant to settle in it without buying. On the contrary: the lower the ratio between the average sale price per square metre and the average monthly rental per square metre, the more attractive it will be to buy.
If many years of rent are required to purchase, it means sales prices are high compared to rental prices; and vice versa – if few years are required, sales prices are low compared to rental prices.
The index must be assessed on a case-by-case basis, as each city presents a different scenario.
When comparing sale and rent prices, we see that the highest index is in the city of Sienna, with 22.8 years, followed by Cuneo (21.9 years), Trento (21.7) and Venice (21.2), while in Matera it is 20.6 years. All the other main towns require less than 20 years of rent to buy a house, but in almost all of them, they exceed the national average of 11.9 years. Only five cities rank below this threshold: Brindisi (11.6 years), Rovigo (11.2) Trapani (10.8), Syracuse (10.5), Biella (9.8).
In large cities such as Milan, the purchase price is the equivalent of 18.8 years of rent, while in Rome and Naples it is 17.8 and 17.3 respectively.
The rental price per square metre per month in Barcelona averages at 21.8 euros, making the Catalan city the most expensive place to rent in Spain. Madrid is the second most expensive with an average of 17.3 euros per square metre per month. This data is contained in the report by the professional services firm EY, The Living Property Telescope 2022. According to this study, which explains Spanish real estate behaviour between March 2018 and October 2022, the increase in rental prices in Barcelona over this period has been 36% compared to an increase of 16% in Madrid. These are the details about Barcelona being the most expensive city to buy and rent a home in Spain.
The most expensive property in Spain found in Barcelona
The Living Property Telescope 2022, also points to Barcelona and Madrid as the cities where the time it takes to rent a property has reduced the most. The time to rent a property has been reduced by 56% in both areas. Specifically, in Madrid the waiting time is around 1.3 months and in Barcelona 1.4 months. The time it takes to sell a property in the two cities is also very similar, 2.3 months in Madrid, with a reduction of 40%, and 2.4 months in Barcelona, with a respective reduction of 35%.
What does not fall, but rather continues its upward trend, is the cost of property in these municipalities, which have the highest prices in Spain. The most expensive city to buy property in Spain is Barcelona, with a price per square metre of 4,220 euros, which represents an increase of 6% over the period studied. The price per square metre in Madrid is set at 4,028 euros, an increase of 8%.
The third most expensive city is Bilbao
After the two cities where it is most expensive to buy and rent, the third most expensive city in the ranking is Bilbao. The average selling price is 3,259 euros per square metre, an increase of 7%. It is also the third province with the highest rental prices, 14 euros per square metre per month, an increase of 7%. The EY study calculates the selling time in Bilbao at 4.1 months, 10% less, and the rental time at 2.2 months, which, unlike the other cities, breaks the trend, increasing by 7%.
Valencia is the second city, after Barcelona, in which the rental price has increased the most, according to the report, the increase has been 32%, standing at 12.6 euros per square metre per month. Likewise, this is also the third province in which purchase prices have risen the most, up to 13%, reaching 2,066 euros per square metre. The time it takes to sell a property in Valencia is calculated at 3.2 months, 28% less.
Málaga is where it takes the least time to rent a property
One of the cities that appears in this study is Málaga. The sixth most populated city in Spain has a rising market marked in part by the attraction it is exerting on large new technology companies. Málaga is the city where it takes the least time to rent a residence, only 0.9 months. This represents a reduction of up to 67%. It is worth noting the increase in the price of rents, up 25% to 12.8 euros per square metre per month. In Málaga, the price of homes has increased by 10%, with an average figure of 2,394 per square metre.
Price increases in Seville and Zaragoza
The EY report also points out the rise in prices in the provinces of Zaragoza and Seville. The increase in the cost of sale in Zaragoza has been 5%, standing at 1,700 euros per square metre and in Seville 4%, at 2,054 per square metre. The cost of rent has also risen in these two cities, in Zaragoza by 7%, to 9.1 euros per square metre per month, and in Seville by 8%, from 10.1 euros per square metre to 10.9. It is worth noting that the time it takes to sell a property has been considerably reduced in Seville, by 46%, which translates into an average of 2.3 months. In Zaragoza a property takes around 2.7 months to be sold. In Seville a property takes 2.2 months to be rented, 27% less and in Zaragoza 1.6, which means 33% less.
Is it better to buy a house or rent? Both have their advantages and pitfalls and this eternal question is now even more relevant in Italy due to the coronavirus health pandemic, a changing real estate market and new trends in the market. The experts at Tecnocasa are going to give us some answers, looking specifically at the case of Milan, Rome and Naples.
At the moment, interest rates are still particularly convenient, house prices are low (although in some cities they have started to rise) and rental prices are also on the rise. The analysis of the convenience of buying a property, rather than choosing to rent, takes these variables into account:
- a medium to well-used apartment typology
- properties located in three areas: the centre, semi-centre and outskirts of Milan, Rome and Naples
- the purchase of both two-room and three-room apartments
- a 25-year mortgage, at a rate of 1.35%, with financing of both 70% and 80% of the value of the property, with sufficient liquidity to cover at least 20% of the value and additional expenses when the loan is taken out
- comparison of mortgage instalments with rental payments
- the level of income needed to access credit
Let’s have a look at the results of the analysis in each of the cities:
Milan
In the most central area of Porta Romana-Crocetta, for a two-roomed apartment worth 393,500 euros and a three-roomed apartment worth just over 520,000 euros, mortgage installments are always lower than rent, both with 80% and 70% financing. For this reason, purchasing a property is the best choice.
In the semi-central area of Solari-Foppa, both in the case of buying of a two-roomed apartment and a three-roomed apartment with 80% and 70% financing, the installment of the loan is lower than the rent, with rent set around 1,600 euros for a three-roomed apartment and 1,200 for a two-roomed apartment.
In the outskirts in the Barona-Santa Rita area, not only does buying a property always come out on top of renting (with rental prices from 950 to 1,200 euros), but the gap between rental prices and mortage installments gives a clear advantage to the latter.
Rome
In the centre of the city in Ghetto di Roma (the Roman Ghetto) for example, a rental lease is the most convenient option. For a two-roomed apartment, worth 529,000 euros, you would pay monthly rental of around 1,200 euros per month against a mortgage installment of 1,660 euros. Even in the case of a three-roomed apartment valued at 703,000 euros, it is always worth renting: rent would range from 1400 euros and mortgage installments from 2210 in the case of 80% financing.
In the semi-central area of Prati-Cola di Rienzo and the suburbs, Centocelle-Faggi, buying property comes out on top, and in particular those with three rooms, as mortgage installments work out at almost half the average rent.
Naples
In Naples, purchasing is always the best option. The only case where this could be argued is in the case of the three-room apartment financed at 80% in the Fuorigrotta district, where mortgage installments and rent are on a par with each other (717 euros for mortgage installments and 700 euros rent per month).