New research shows that following the increases in private sector rents over the past eighteen months, the average tenant now pays more to rent a property than an owner occupier who is making monthly mortgage payments.
Property website Zoopla claim this is proof that it is now much more cost effective to buy (on a mortgage costing 5%) than to rent in 80% of towns and cities in Great Britain. The financial gap between renting and buying has been widening since the summer of 2010, when renting was 9% more expensive. Zoopla’s figures are based on the cost of running a two bedroom flat in the largest 50 towns and cities throughout the country; they assume an interest only mortgage at 5% as a basis for the comparison. In some places rents have gone up so quickly that the tenant is paying a lot more than owner occupiers.
Nicholas Leeming, at Zoopla.co.uk, said “While lenders maintain their vice-like grip on loans, more and more would-be buyers have to rent instead of getting on to the housing ladder. Rents are likely to rise further as a result, and tenants will continue to pay a significant premium for being stuck in the sector. While buying wins out over renting today, the impact of a possible rise in interest rates cannot be ignored. If interest rates rose by one per cent and rents stayed the same, renting would become more cost effective in 78% of the locations studied.”
There are many reasons for rents going up, with the severe shortage of mortgages keeping potential first time buyers stuck in the rental market being the main one.
In London which has the highest asking prices anywhere in the country, buying is still more cost effective. However, there are still some places where renting is the more cost effective option. In Plymouth, the average two-bedroom flat costs £581 per month to rent, against £156,000 to buy, this makes renting £71 per month cheaper than the average mortgage cost. Plymouth was one area that took advantage of the buy-to-let boom of a couple of years ago, with landlords buying properties and protecting them with landlord insurance to attract the big student and military population. Now the extensive supply of rental properties has pushed rents down.