It has become cheaper to rent rather than buy a home in most parts of the country for the first time since December 2014, fresh research shows.
High demand from prospective buyers and a shortage in the number of properties being listed continues to push property prices up.
In May, tenants typically spent £71 a month less in rent than if they were forking out cash for mortgage repayments on a 90 per cent loan-to-value home loan for the same property, according to Hamptons.
Turnaround: It has become cheaper to rent rather than buy a home in most parts of Britain
The cost to rent in this instance would be £1,054 a month, against £1,125 a month for mortgage repayments on the same home.
Rewind back to March 2020, however, and a buyer with a 10 per cent deposit would have been around £102 a month better off buying a home rather than renting, the findings add.
Now, it is only cheaper to buy a home rather than rent in four regions, namely the North East of England, the North West, Yorkshire & the Humber and Scotland.
London has seen the starkest shift, with a buyer putting down a 10 per cent deposit going from being £123 a month better off buying a home in March 2020 to spending £251 per month less on rental costs in May 2021, according to the findings.
Hamptons said: ‘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.’
Costly: Monthly cost of buying relative to renting with a 10% deposit
Buyers with only a 5 per cent deposit face an ever bigger uphill struggle than those with a 10 per cent deposit. A buyer with a 5 per cent deposit will, on average, spend around £195, or 19 per cent, more each month than if they had carried on renting, Hamptons said.
Amid fairly cheap mortgage deals, the stamp duty holiday and a strong desire among buyers for more space and a change in lifestyle, the pandemic has prompted frenzied activity in the property market in many parts of the country.
Around 704,000 homes on Rightmove’s website are currently marked as ‘sold subject to contract’, which means the sale has been agreed, but contracts are yet to be exchanged.
Aneisha Beveridge, head of research at Hamptons, said: ‘The pandemic has reversed a six-year trend which now makes it cheaper to rent rather than buy a home.
‘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.’
Property prices reached another record high in May, with the average home adding more than £3,000 of value in the last month alone, recent figures from Halifax showed.
The typical home is now worth nearly £262,000 according to the Halifax price index, which is £22,000 or 9.5 per cent more than in May 2020.
Rental costs jump sharply too
Property prices for buyers have been a hot topic since the height of the pandemic, but the cost of renting has also jumped sharply to a new ‘record high’ over the period.
Last month the average cost of a newly let rental home swelled to £1,054 a month, representing a 7.1 per cent rise on the same time last year. This marked the fastest rate of growth since Hampton’s records began in 2013, surpassing the previous peak of 7 per cent growth in December 2014.
Rental costs: A table showing how much monthly rental costs have shifted in the past year
While rents bottomed out in May last year, the average rental home cost £43 or 4.1 per cent more than it did in May 2019.
Four out of the country’s eight regions recorded record rental growth last month, namely the South East, South West, Midlands and Scotland.
Rental costs in the South East and South West of England hit double digits for the second consecutive month, rising 13 per cent and 11.5 per cent respectively.
Meanwhile London continued to be the only region where rents fell. The capital saw monthly rental costs dip 0.5 per cent year-on-year.
With many buyers and tenants seeking out more space, rental costs rose faster on bigger properties. In May the average rental cost for a four-bedroom home surged to £1,805 a month, up 9.5 per cent on the same month last year. Meanwhile rents on one-bedroom homes remained broadly flat.
Is buying the right option for you?
The decision to buy a home is a big one and shouldn’t be taken lightly.
Here, This is Money and the Money Advice Service run through a number of the pros and cons to consider before taking the plunge and buying a property.
Pros of buying a home
– One of the best things about buying a home is that once any mortgage repayments are paid, which of course can take many years, you will own the property outright and not have to worry about paying for somewhere to live.
– If the home you buy goes up in value over time, if you ever decide to sell it you will be able to take advantage of the equity to help you buy a bigger home or fund a more comfortable retirement.
– When you buy a property, you can spend money improving your home and increasing its value without having to ask a landlord, which is what tenants renting a property often have to do.
– In some circumstances, but not all, it can be cheaper to buy a home as opposed to renting one. This is the case in places like Scotland and Yorkshire & the Humber at present.
Drawbacks of buying
– As the Money Advice Service stresses, buying a home is a major commitment and you have to ensure you can afford to take it on.
– Maintenance costs like new boilers or a leaky roof can really stack up after you buy a home. And even before you move in, things like removal service fees can be expensive.
– Interest rates are very low at present, but if and when they go up, mortgage repayment costs could increase for some people. It will always pay to shop around for the best mortgage deal.
– If the value of your home falls, you might be unable to sell if you owe more to your mortgage lender than your home is worth, the Money Advice Service notes.
– You have less flexibility than when renting. For example, selling up and moving is more expensive as you have estate agency and legal fees to pay.