10% cheaper to buy Than to Rent

by Mark Johnston

It may come as a surprise to many in the United Kingdom but it is now cheaper to purchase a home than to rent one. New research has highlighted that in as many as 80%n of towns and cities across the UK, the cost of owning a house has dropped below the cost of renting one. This may come as good new to first time buyers but many will already realise that it makes little difference if they cannot secure a mortgage.

The balance of cost between home ownership and renting has probably switched because of the continued decline in house prices and the rising rents which have been a product of the lack of mortgages available to first time buyers. Would be home owners are now forced to rent which has put considerable pressure on the private rental market, in turn pushing up prices.

The report showed that monthly rental income on a two bedroom flat is almost 10% higher than an interest only mortgage when using a typical rate of 5%. The last time the report was published, around 75% of towns and cities in the UK were cheaper to buy than to rent which has now increased to 80%. The difference between renting and buying has also changed, from 8.7% to near 9%.

The report did point out that the rises are probably due to the continued falling house prices as a result of a stagnant market. This was brought on by an increased number of houses going up for sale with few first time buyers entering the market as they could not secure mortgages. Many first time buyers have struggled to get home loans since banks and building societies tightened their lending criteria and started to request much higher deposits as a way to shield themselves from the risk of default.

Another contributing factor has been the sustained low interest rates set by the bank of England. The 0.5% is the lowest the rate has ever been and has been kept low for well over a year.

Nicholas Leeming a spokesperson for the company responsible for the report said: “Buying has always been somewhat cheaper than renting, but we’re now seeing a real insider-outsider divide in the housing market. For those who are able to buy a home, costs are low, but for those who can’t, costs are much higher – and the doorway to entry into the housing market is narrower than ever.”

Many are looking to the base rate and expecting to see a change sometime soon. Experts predict that if interest rates rise, the balance could soon shift quickly and make rental a much more attractive alternative. It would only take a 1% rise in interest rates to 1.5% to switch the balance. The increase would make it cheaper to rent than to buy in over 70% of towns and cities. Interestingly, York has the biggest difference between purchasing a property and renting, it’s a staggering 40% cheaper to buy than to rent with cities in the midlands not far away at around 35%.

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