Buying versus renting: Which is cheaper, and where?

WHICH is more economically viable in the short to medium term – buying a home with a mortgage, or renting?

Wherever you are in the world, the decision will always be a personal one and depend entirely on your own criteria. Many consider renting a permanent home is 'dead money' and that, unless there's a substantial difference which puts mortgage repayments out of their reach, prefer to spend their housing cash every month on something that will eventually become their own, will probably increase in value (whether that takes a couple of years or a lifetime), and which they may be able to release funds from farther down the line for anything from major renovations to elderly care costs. Others, especially if they are not sure they will want to be living in the same area forever, particularly if they are willing to relocate for the right job if this turns up, who are a bit nervous that homes may become incredibly difficult to sell at a later date and force them to stay put, or who feel there may be little or no demand among would-be tenants for the type of home they want to live in for now - making moving out of the area whilst renting their house to others until it sells could be nearly impossible - might prefer the relative ease of being able to simply pack up their worldly goods, hand back the keys, and collect another set in their preferred location.

For first-time buyers, the situation may be entirely financial: Unless they have a secure, permanent job or regular income, or are in the type of profession where they could pick up a new one practically the next week once their temporary contract expires, they may not be accepted for a mortgage; or perhaps they would, but know they would never be able to save up for the deposit and fees.

Very few banks will lend more than 80% of either the market price or the actual value, whichever is the lowest, on a main residence (typically 60% for a second or subsequent property), and future owners then have to factor in around 12.5% on top of the buying price for fees and taxes – slightly less when purchasing outright, as mortgage set-up costs are not involved.

But for those who have some capital or equity behind them – maybe having saved up enough for a potential deposit, selling their existing home to move to another, or selling or releasing equity on a property they have inherited – where it's a straight question of how much a roof over one's head costs per month, the decision comes down to mere figures.

Rent rockets by 41% in five years (but affordable tenancies are still out there)

Renting has long been at least slightly more expensive than monthly mortgage repayments in most of Spain, and this is becoming even more the case: Being a tenant in the largest towns and provincial capital cities is considerably more costly than even just a short few years back.

According to the National Statistics Institute (INE), the average monthly rent cost is now 32% more than a decade ago, and 41% higher than five years ago: Back in 2016, allowing for vast regional and local variations which could see tenants in one town or province paying at least five times more than in another, the average national figure for an 80-square-metre home – roughly the equivalent of a spacious three-bedroom apartment – was €592 per month; by 2021, it had rocketed to €835.

But extremes at either end of the price scale, and at all levels in between the two, are still out there – even in very popular residential areas, in cosmopolitan expatriate or tourist belts or close to them, or a short distance to a key city.

Take a look at our section on property to rent for €500 or under, with over 720 listings at the time of publication; around 230 for €400 or under, and even 28 at €300 or less.

Many of these are in towns close to or right on the coast in the provinces of Almería, Málaga, Alicante, and in the Canary Islands.

If you're looking for a buy-to-let property either as an investment or regular income, or both, being able to offer affordable rent, especially in some of Spain's high-price hotspots where this is difficult to find, means you may be able to fill a gap in the market.

Is it ever cheaper to rent than to buy with a mortgage?

Again, that depends upon the size of the deposit you might have available for a home, type of home you're seeking and its likely price, and how long a mortgage term you're offered, or willing to take. The longer the term, the higher the interest, so you might find that the difference between, say, a 25-year and a 35-year home loan is not worth the saving to be paying it off for an extra 10 years.

Quantity surveyors UVE Valoraciones researched rent-versus-mortgage prices in 107 of Spain's municipalities – the provincial capitals, and other significantly-sized towns.

The study took the typical mortgage as at June this year of 80% loan-to-value, 1.52% interest, and a term of 24 years and six months, based upon average sale prices at the time – figures published by the Spanish Mortgage Association (Asociación Hipotecaria Española).

Then, UVE Valoraciones took the average rental price for the same properties in the same areas, dividing the monthly mortgage repayment by the monthly tenancy payment.

Where this resulted in rent prices being 85% or more of the mortgage repayments, the research concluded it may be economically viable to be a tenant rather than an owner, discounting all other criteria such as future investment and the gradual reduction in loan payments over the years as the capital owed reduces.

Of the 107 examined, the figure of 85% was only exceeded in 11 towns or cities.

And it was only in one of them that the actual monthly mortgage cost was higher than what the borrower would pay in rent instead.

This was the Basque Country coastal city of San Sebastián, capital of the province of Guipúzcoa, where the average monthly mortgage cost was 110.29% of what would typically be paid in renting the same property.

Borderline, but still worth considering renting for those on the move

Also in the province of Guipúzcoa, Getxo homebuying costs are 98.79% of renting costs, meaning that with variations depending upon what is available at the right time, a person whose decision to become an owner or tenant is purely based upon what they have to pay every month would find little or no difference.

Many of the 10 towns and cities where buying was nearly as expensive as renting also figure regularly in the annual list of the wealthiest locations in Spain – based upon the mean average income per head - including Sant Cugat del Vallès (Barcelona province), at 95.68% of the mortgage price, putting it third out of the 107; Alcobendas, pictured below (89.68%, or sixth), Majadahonda (88.94%, or seventh), and Pozuelo de Alarcón (88.35%, or eighth), all in the Greater Madrid region and the latter of which normally comes out as number one on the 'highest income towns' yearly list.

Closer to tourist belts, Marbella is only slightly more expensive to buy in than to rent, with owners paying 92.24% of what a tenant would pay, putting it in fourth place; and Palma de Mallorca, where owning costs 90.15% of renting, leaving it in fifth position.

Barcelona city – which, along with Madrid, has seen some of the highest rent prices in the country in the past few years – is still cheaper to buy a property in with a mortgage, which costs 87.87% of renting, but borderline enough that it would still be worth considering if monthly expenses were the only factor.

Locations at number 10 and 11 are both in the same province, A Coruña, in the far north-western region of Galicia and a popular beach haunt in summer for residents in inland northern areas – in the provincial capital, of the same name, a monthly mortgage costs 87.09% of the price of renting, and in the 'pilgrimage' cathedral city of Santiago de Compostela, a home loan would cost you 85.2% of what you would pay as a tenant.

Similar, but still cheaper to buy and with some return on letting

UVE Valoraciones also named the locations in Spain where the cost of buying comes to between 75% but just short of 85% of that of renting.

In these, the difference may be slight enough at any one time that, where monthly expenses were the main consideration, a person looking for somewhere to live may decide renting wins out over buying.

But at this figure, and allowing for tax payable by landlords and landladies on rental income received, a buy-to-let investment would at least be covered by what tenants would pay and is likely to yield extra – at least small regular earnings – or give the owner room to 'play around' with what they charge for rent if they purely want to cover their own outlay and seek to increase demand by offering a lower price.

Many of these locations were in sought-after holiday havens, retirement or summer-home areas, or with a relatively high number of expatriates of a mix of nationalities – such as, in the province of Málaga, Estepona, Fuengirola, Mijas, and Vélez-Málaga – and in the province of Alicante, Orihuela, Torrevieja and Benidorm (shown above); also in the provincial capital of Cádiz, right on the coast and with good connections to other seaside locations and large cities.

In the national capital region, Madrid itself, Las Rozas, and Rivas-Vaciamadrid all had monthly mortgage costs of between 75% and 85% of rent prices; the Basque Country provincial capitals of Bilbao (Vizcaya) and Vitoria (Álava), the Costa Brava's largest city of Girona, the Navarra regional capital of Pamplona, and two Galicia provincial capitals – Ourense and Pontevedra – fell into this bracket.

What could change?

Rent prices appear to have been more dynamic in recent years than homebuying prices; as in, although the value of bricks and mortar has been rising steadily, the actual cost of purchasing has not varied hugely since the difference in house price changes does not reflect so sharply in mortgage repayments, and increases are at least partially offset by very low interest rates – the Euribor, or Eurozone rate, which applies to mortgages in Spain, has been in negative figures since February 2016 and gradually falling annually thereafter, a situation likely to continue as the European Central Bank (BCE) seeks to stimulate growth in the single-currency area by making finance more affordable.

Rent prices are more directly and immediately affected by market economics, and a shortage in rental homes, especially in big cities and major towns – commuter belts included – has led to a stiff hike in the cost to tenants since around June 2021.

Some of the most populated locations – Madrid, Barcelona, Bilbao, Alcobendas, Majadahonda, Pozuelo de Alarcón, Las Rozas, Getxo, Sant Cugat del Vallès, and Marbella – are expected to see further rent price increases over time due to a low ratio of available tenancies per inhabitant, UVE Valoraciones says.

This 'predictable rise' in renting fees 'may mean buying becomes, once again, more economically viable than being a tenant', the report states.

As seen in all these towns and cities mentioned – bar San Sebastián - buying already is, in fact, more economically viable than renting, but only by a slim margin.

The research, though, claims this margin could well widen over time as demand for rented homes continues to outstrip supply.

UVE Valoraciones says young adults, particularly those who have never owned a home before, are the main community behind this growing demand, given that to buy a property with no equity, they would have to save up 'the equivalent of about 31-32% of the market price' for deposit and fees.