It has become cheaper to rent rather than buy a home in most parts of the country for the first time since December 2014, new research shows.
Strong demand from potential buyers and the shortage of listed properties continue to drive up real estate prices.
In May, tenants were typically spending £ 71 less per month on rent than if they were spending money on mortgage payments on a 90% home loan for the same property, according to Hamptons.
Turnaround: It has become cheaper to rent rather than buy a house in most parts of Britain
The cost of rent in this case would be £ 1,054 per month, compared to £ 1,125 per month for mortgage payments on the same house.
Let’s go back to March 2020, however, and a buyer with a 10% down payment would have been around £ 102 per month better off buying a house than renting, the findings add.
Now it is only cheaper to buy a house than to rent in four regions, namely North East England, North West, Yorkshire and the Humber and Scotland.
London has seen the most dramatic change, with a buyer putting down a 10% down payment from £ 123 per month to buy a house in March 2020 to £ 251 less per month in rental fees in May 2021, according to the findings .
Hamptons said, “Falling rents in the capital have made renting cheaper compared to buying at a higher margin than anywhere else. And with rents still falling, the differential should continue to grow.
Expensive: Monthly purchase cost compared to rental with a 10% deposit
Buyers with only a 5 percent down payment face increasingly difficult challenges than those with a 10 percent down payment. A buyer with a 5% down payment will spend, on average, around £ 195, or 19%, more each month than if they had continued to rent, Hamptons said.
Amid fairly cheap mortgage deals, a stamp duty holiday, and a strong desire from buyers for more space and a change in lifestyle, the pandemic has sparked frantic activity in the real estate market. in many parts of the country.
About 704,000 homes on Rightmove’s website are currently marked as “sold under contract,” meaning the sale has been agreed, but the contracts have yet to be traded.
Aneisha Beveridge, head of research at Hamptons, said: “The pandemic has reversed a six-year trend that now makes renting cheaper than buying a home.
“A year ago, lenders were raising their rates or completely withdrawing mortgages with a higher loan-to-value ratio. For first-time buyers in particular, this pushed the cost of paying off a mortgage, if they could get one, well above the cost of renting.
“It is likely that the balance will revert to buying somewhat, especially as mortgage rates fall. However, this should be partially offset by rising house prices.
“And while interest rates fall, they are still considerably above what they were before the pandemic on loans with higher loan-to-value ratios.
“Despite this, we expect the rent-to-buy gap to close by the end of the year, returning to longer-term levels in 2022.”
House prices hit a new high in May, with the average home adding more than £ 3,000 in value in the last month alone, recent figures from Halifax show.
The typical house is now worth almost £ 262,000 according to the Halifax Price Index, or £ 22,000, 9.5% more than in May 2020.
Rental costs are also rising sharply
Property prices for buyers have been a hot topic since the height of the pandemic, but the cost of renting has also risen sharply to a new ‘record high’ during the period.
Last month the average cost of a newly rented rental house rose to £ 1,054 per month, up 7.1% from the same period last year. This is the fastest growth rate since the Hampton records began in 2013, surpassing the previous peak of 7% growth in December 2014.
Rental Fee: a table showing by how much the monthly rental fee has changed in the past year
While rents bottomed out in May last year, the average rental home cost £ 43, 4.1% more than in May 2019.
Four of the country’s eight regions saw record rental growth last month, namely the South East, the South West, the Midlands and Scotland.
Rental costs in the South East and South West of England hit double digits for the second month in a row, increasing by 13% and 11.5% respectively.
Meanwhile, London continued to be the only region where rents fell. The capital saw its monthly rental costs drop 0.5% year-on-year.
With many buyers and tenants looking for more space, rental costs have increased faster on larger properties. In May, the average rental cost of a four-bedroom house climbed to £ 1,805 per month, up 9.5% from the same month last year. Meanwhile, rents for one-bedroom homes have remained broadly stable.
Is purchasing the right option for you?
The decision to buy a home is an important one and should not be taken lightly.
Here, This is Money and Money Advice Service go over a number of pros and cons to consider before you take the plunge and buy a property.
Benefits of buying a home
– One of the best things about buying a home is that once the mortgage payments are paid, which of course can take many years, you will become the owner of the property without having to worry about paying for accommodation.
– If the house you buy appreciates over time, if you ever decide to sell it, you can take advantage of the equity to help you buy a bigger house or finance a more comfortable retirement.
– When you buy a property, you can spend money to improve your home and increase its value without having to ask a landlord, which tenants who rent a property often have to do.
– In some circumstances, but not all, it may be cheaper to buy a house than to rent one. This is currently the case in places like Scotland and Yorkshire & the Humber.
Disadvantages of buying
– As the Money Advice Service underlines, buying a home is a major commitment and you have to make sure you have the means to pay for it.
– Maintenance costs like new boilers or a leaking roof can really add up after buying a home. And even before you move in, things like moving service fees can be expensive.
– Interest rates are very low right now, but if they go up, mortgage repayment costs could go up for some people. It will always pay off to look for the best mortgage deal.
– If the value of your home drops, you may be unable to sell if you owe your mortgage lender more than your home is worth, notes the Money Advice Service.
– You have less flexibility than when renting. For example, selling and moving costs more because you have a real estate agency and legal fees to pay.
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.