British Homes Cheaper to Rent Than Buy for the First Time Since 2014
For the first time in almost seven years the average British home is now cheaper to rent than buy. In all but four areas of the UK, monthly outgoings are now slightly lower for private renters than those purchasing similarly priced properties.
Property prices are being pushed to new record-highs on a regular basis by dwindling inventory and high-demand from movers and first-time buyers across the country; those purchasing homes with a typical 90% LTV mortgage are finding themselves worse off on a monthly basis than equivalent renters.
The reversal marks the first time it has been cheaper to rent than to buy since December 2014, according to the latest figures published by Hamptons estate agents.
Moderate Monthly Savings for Renters
The data published by Hamptons indicates that the average private renter is now spending £71 less per month than if they had purchased their home with a monthly repayment mortgage.
While the average mortgage repayment in the UK now stands at £1,125, the average rent payment is now slightly less at £1,054. Just a year ago, purchasing a home with a 90% LTV mortgage would have seen the buyer £102 better off per month than an equivalent renter.
Today, there are only four areas of the UK where it remains cheaper to purchase a property than to rent privately; the North East of England, the North West, Yorkshire and Scotland according to Hamptons.
The most dramatic shift of all was noted in London, where the average buyer with a 90% LTV the mortgage has gone from being £123 better off per month in March last year to being £251 worse off than an equivalent renter in May 2021.
“Falling rents in the capital have made renting cheaper relative to buying by a bigger margin than anywhere else. And with rents still falling, the differential looks set to continue growing,” commented Hamptons.
95% LTV Mortgage Customers Expected to Struggle Most
Buyers looking to secure a mortgage with a 5% deposit are likely to struggle most of all, subsequently spending on average £195 more per month than an equivalent renter. This equates to an additional monthly outgoing of almost 20%, due to the additional costs incurred with a higher LTV mortgage.
“The pandemic has reversed a six-year trend which now makes it cheaper to rent rather than buy a home,” commented Aneisha Beveridge, head of research at Hamptons.
“A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether. For first-time buyers in particular this pushed up the cost of a paying a mortgage, if they could get one at all, to well above the cost of renting,”
“It is likely the balance will swing back somewhat towards the buying, particularly as mortgage rates come down. However this is likely to be partly offset by rising house prices,”
“And while interest rates are falling, they’re still considerably above where they were pre-pandemic on higher loan-to-value loans,”
‘Despite this, we expect the gap between renting and buying to close over the remainder of this year, moving back towards longer-term levels in 2022.”