Buying a Home is Cheaper Than Renting

by Mark Johnston

A new report has highlighted that due to the state of the UK house market, falling property prices has resulted in it now being cheaper to buy a home then to rent in eight out of ten towns and cities up and down the United Kingdom.

The research showed that due to falling prices in the housing market and increasing rents, it is around 10% more expensive to buy a home rather than to rent. The sustained low interest rates of 0.5% probably have a lot to do with the falling cost of buying as just one year ago the cost of renting was just 8% more than buying. Some experts do argue that renting can be more cost effective in the long term if losses on falling house prices are taken into account.

Although it now may make financial sense to look to own your own house, first time buyers are struggling to secure home loans which in turn is having an impact on rental prices as there is much more demand than their has been in the past as more and more would be home owners are forced to rent for longer periods.

The report looked at the cost of renting an average two bedroom flat in relation to buying one. In areas such as Milton Keynes it was found to be a massive 42% more to rent rather than to buy. This may seem very high but its worth looking closer at the figures. The average flat rental is around £785 which was compared to the cost of a interest only mortgage of a similar home which would cost around £550.  Although their is a big difference in price, a capital repayment mortgage would cost much more and does not take into around the large deposits which are required to secure a mortgage these days.

In towns and cities in the midlands such as Walsall and Birmingham, it was between 35 and 40% cheaper to buy a property at the lower end of the scale. Some areas on the south coast came out as more expensive to buy rather than to rent with average rents at around £580 whilst a similar mortgage would cost about £650.

Nicholas Leeming, the business development director of the company that commissioned the reports said:: “While buying wins out over renting today, the impact of a possible rise in interest rates cannot be ignored. If interest rates were to increase by 1% and rents were to remain the same, renting would become more cost-effective in 78% of the locations studied.”

Even with falling house prices and low interest rates, first time buyers are finding if difficult to buy a home. Many mortgage lenders are only lending to those with larger deposits or are not offering agreeing enough mortgages even when first time mortgages are offered. Private landlords are also finding it hard to secure lending which means it’s for them to buy more property which further increases rents are there is more demand in the market.

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