Renting is cheaper than first-time buying

Rising property prices and higher mortgage rates now mean first-time purchasers lose out against renters

RENTING a home is cheaper than buying for the first time in six years, amid soaring house prices.

First-time buyers with small deposits face losing out on hundreds of pounds per year compared to their renter counterparts because of rising house prices and higher mortgage rates.

Figures from Hamptons, the estate and lettings agent, show that the average private tenant in Britain spent £71 per month less in rent than if repaying a 10 per cent deposit mortgage.

They would have spent a monthly average of £1,054 on rent compared to £1,125 on mortgage repayments, the first time since December 2014 that renting has been cheaper than buying.

In March 2020, someone with a 10 per cent deposit would have been £102 per month better off as a homeowner on average, it said.

London has seen the greatest shift since the start of the coronavirus pandemic. Falling rents there mean a buyer putting down a 10 per cent deposit on a property will have gone from being £123 per month better off in March 2020, to spending £251 per month more than a renter in May 2021, the report said. Only Scotland and three English regions – the North East, North West, Yorkshire and Humber – where still cheaper to buy than rent, the researchers found.

In early 2020, it was cheaper to buy than rent in every region or nation in Britain, Hamptons said, a trend that has held steady for the best part of a decade due to low mortgage interest rates and escalating rental prices.

Strong house price growth has since added to the cost of buying and owning a home, and rental prices are now also seeing growth after “bottoming out” last May, though this trend is driven by larger family homes rather than smaller starter flats. Last month the average cost of a newly let rental home was 7.1 per cent higher than a year earlier. This marked the fastest rate of growth since Hamptons’ records started in 2013, surpassing the previous peak of 7 per cent in December 2014.

In May, the average rent on a fourbedroom property in Britain increased to £1,805 per month, up 9.5 per cent on the same month last year.

Rents on one-bedroom homes remained flat, rising just 0.4 per cent.

Aneisha Beveridge, head of research at Hamptons, said the disparity was due to the “race for space” during lockdown which had led people to seek out larger homes, as well as the impact of furloughed workers now unable to pay higher rents.

“Small properties such as flats are more likely to be in city centres which are underperforming, while demand for bigger properties, particularly those in suburban and rural areas, has been more robust.

“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 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 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 LTV (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 longerterm levels in 2022,” she said.

A survey by the price comparison site Gocompare found that for the first time a garden is the biggest priority for house-hunters, overtaking other features such as central heating, double glazing and secure doors and windows.