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Cheaper to rent than buy

Renting is cheaper despite rising rents

It was interesting to read about the recent report by Hamptons, the estate agents, which indicated that in the UK it is currently cheaper to rent than buy a property, making for some eye catching headlines. 

The research showed that prior to the pandemic in March 2020, buyers purchasing with a 10 per cent deposit were better off on average by £102 per month, but in last month’s report private sector renters were better off by £71per month.

According to Hamptons, in early 2020 it was cheaper to buy than rent in every region of the UK, but now it is only cheaper to buy in four areas, the North East, North West, Yorkshire and Humber, and Scotland.

What is most impressive about these findings by Hamptons is that it is cheaper to rent despite the 7.1% increase in average rents over the last 12 months. This is mainly because there has been strong growth in house prices and the availability of more expensive higher loan-to-value mortgages have contributed to the cost of buying a residential property.

Regional variations

Unsurprisingly there are regional variations in the disparity between buying and renting. For example, the report found it was £108 cheaper per month to rent in the South West, £117 cheaper in the East and £251 cheaper in London.

London has been most significantly affected, exacerbated by the fall in tenant demand and rents during the pandemic. During the lockdown periods many university students moved back to their parents and the increasing number of people now working from home means they are less tied to the daily commute to an inner-city office. Some have now moved out of the capital city either temporarily or for the long term.

Another factor to consider has been the availability of mortgages for first time buyers. During the early days of the pandemic, lenders either increased prices or withdrew higher loan-to-value mortgages, making it difficult for those looking to buy their first home without a large deposit.

Mortgages for first time buyers

A year later, the mortgage market is recovering with more low deposit residential mortgages now available. In fact, according to Moneyfacts, 80 new products up to 95 per cent LTV were launched in May 2021, albeit there is still less choice and the average interest rate for 2 and 5year fixed rates is currently higher than before the pandemic.

Some applicants, even those with higher deposits, may also find it difficult to obtain a residential mortgage if they have been furloughed or experienced any credit issues during the pandemic.

Although the cost of getting a residential mortgage may return to pre-Covid levels at some point in the future, the current market conditions are beneficial for buy-to-let property investors in most areas of the UK as tenant demand remains strong.

There have also been reported increases in the levels of savings during the pandemic, so with interest rates on savings at an historic low, now could be an excellent time to consider investing in brick sand mortar. This may result in renewed interest from amateur landlords or an expansion of portfolios for seasoned buy-to-let investors.

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This website aims to give you general information. It is not advice, nor can it take account of your own particular circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage. The Financial Conduct Authority does not regulate some forms of mortgages.

Buy-to-Let Direct Limited: registered in England no. 06664758 : Greenmeadow House, 2 Village Way, Greenmeadow Springs Business Park, Cardiff, CF15 7NE. Buy-to-Let Direct is an Appointed Representative - Introducer of The Business Mortgage Company Services Ltd and regulated by the Financial Conduct Authority (No. 487867) to transact regulated mortgages and registered as a Consumer buy to let arranger. The FCA does not regulate some investment mortgage contracts.