For millions, the desire to own their own property has been rooted in the potential to reduce monthly outgoings while building equity in their homes. Traditionally, private rental properties have been more expensive on a monthly basis than an equivalent mortgage on the same home.
In March last year, before the pandemic hit, Hamptons estate agents reported that the average home buyer would have spent just over £100 less per month than a comparable renter. By May 2021, the disparity had been almost entirely reversed with renters spending an average of £71 less each month than buyers.
For the first time in several years, it is now cheaper to rent a home in most areas of the UK than to buy. In fact, the data published by Hamptons indicated that there are now only four UK regions where buying is cheaper than renting.
Outside Scotland, the Northwest, the Northeast and the Yorkshire and Humber regions, buying is now more expensive than renting a property privately.
On average, private rental costs have grown by more than 7% since the same period last year. However, record house price growth over the same 12 months has resulted in a market where monthly outgoings can be reduced by choosing to rent rather than buy.
This means that for the average first-time buyer, it would be cheaper to rent than to buy. The UK’s new monthly rental average is now £1,054 while the average mortgage repayment calculator gives a figure of £1,125.
Regional variations in property prices and average rental prices influence the extent to which renting or buying is the more affordable option, as reported by Hamptons:
- Greater London – £251 cheaper to rent
- South East – £54 cheaper to rent
- South West – £108 cheaper to rent
- East – £117 cheaper to rent
- East Midlands – £98 cheaper to rent
- West Midlands, £35 cheaper to rent
- Yorkshire and the Humber – £5 cheaper to buy
- North West – £4 cheaper to buy
- North East – £72 cheaper to buy
- Scotland – £130 cheaper to buy
Experts have attributed the reversal of the six-year trend to the effects of the COVID-19 crisis.
“A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether,” commented Hamptons’ head of research, Aneisha Beveridge.
“For first-time buyers in particular this pushed up the cost of paying a mortgage, if they could get one at all, to well above the cost of renting.”
Ms Beveridge also predicted that buying would eventually become the more affordable option once again, though perhaps not until next year at the earliest.
“While interest rates are falling, they’re still considerably above where they were pre-pandemic on higher LTV (loan-to-value) bridging loans,” she said.
“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.”