Soaring house prices: Renting a home now cheaper than buying for first time in six years

Renting a home is cheaper than buying for the first time in six years because of 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 the estate and lettings agents Hamptons show that in May 2021 the average private tenant in Britain spent £71 per month less in rent than if they were 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 Dec 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 buying on average, it said.

London has seen the largest shift since the start of the coronavirus pandemic. Falling rents in the capital 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.

How much more does paying off a mortgage with a 10 per cent deposit cost compared to renting?

There are only four nations or regions where it is still cheaper to buy than rent – the North East, North West, Yorkshire and Humber, and Scotland, 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 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 seven per cent in Dec 2014.

In May, the average rent on a four-bedroom property in Great Britain increased to £1,805 per month, up 9.5 per cent on the same month last year. Meanwhile, rents on one-bedroom homes remained flat, rising just 0.4 per cent.

UK House Prices

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 centre areas 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 longer-term levels in 2022," she said.

It came as 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.

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