Renting Cheaper Than Buying for First Time in Six Years

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Catherine Tilke

Money Savings Advice Renting Cheaper Than Buying for First Time in Six Years

It's cheaper to rent than to buy a home for the first time since 2014, says London estate agent Hamptons.

New research carried out by the company found that, on average, it is £71 cheaper to rent than to for a first-time buyer to service a mortgage.

Buyers with a 10% deposit paying a typical mortgage pay an average of £1,125 each month for their home, compared to £1,054 for renters.

The company said that house price growth and a rise in high LTV mortgage rates were partly to blame for the rising cost of first-time buyer mortgages.

Head of research at Hamptons, Aneisha Beveridge, said:

The pandemic has reversed a six-year trend which now makes it cheaper to rent than buy a home.

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.

High LTV mortgages, where buyers borrow 90% or more of their home's value, are popular with first-time buyers, who may struggle to raise large deposits as they try to get a foot on the property ladder.

Buyers with just a 5% deposit must face an even larger increase in interest rates on 95% LTV mortgages, meaning they will spend an average of £195 each month than the average renter.

With the cost of rents falling in some parts of the country since the pandemic, the difference in cost between renting and buying is even more pronounced.

According to Rightmove, in April, the average cost of renting dropped by up to 25% in some parts of London due to the vast numbers of people leaving during the lockdown.

This unexpected fall in rental demand means that renters now spend an average of £251 less on rent than buyers do on their mortgages in London.

However, Rightmove noted in its April report that this wouldn't last for long, as 'growing numbers' of tenants are expected to return to the city after lockdown finally eases.

Across the rest of the country, the cost of renting is climbing at a record pace, up 7.1% in May compared to the same time last year on average- but shooting up by as much as 13.0% and 11.5% in the South East and South West of England respectively.

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 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," said Beveridge.

Money Savings Advice Author Catherine Tilke

Catherine Tilke

Catherine is our specialist financial news journalist. With over 7 years of experience and a raft of contacts in the financial world, she prides herself on delivering the most relevant and up-to-date financial news for our readers.

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