News: Buying Beats Renting a Home

Fri, 04 Mar 11

Renting a home now costs 10.5% more on average than paying mortgage interest, according to property website Zoopla.co.uk.

Recent asking price vs. rent research from the property search website reveals that renting a home is now a more expensive option than owning in 80% of Britain’s towns and cities. Moreover, the cost difference has been rising steadily since the middle of last year, when renting was 8.7% more expensive.

The research looked at the prices of two-bedroom flats currently for sale and to rent in the 50 largest cities and towns around the country and mortgage payments are calculated assuming an interest-only mortgage at 5% p.a. to provide an effective comparison to renting.

In some locations, the higher cost of renting is staggering.

In Milton Keynes rents exceed average mortgage servicing costs by 42% - with average monthly rents at £785 Milton Keynes renters are left £2,772 a year worse off compared to owners. Completing the top 3 places where buying is far more cost-effective than renting are Walsall and Birmingham which each have a 38% and 35% rental premium respectively. A further nine of the largest 50 towns and cities have average rents that exceed mortgage payments by over 20%.

Several factors are behind the increased cost of renting. The severe shortage of mortgages has kept many potential first-time buyers in the rental market resulting in high tenant demand, while the combination of stagnant house prices and low interest rates has reduced the monthly cost of home ownership.

Even in London, which has the highest asking prices in the country, buying is still the more cost-effective option. With an average rent of £2,252 per month in the capital, buyers stand to save £4,656 annually compared to renters.The average london market rent according to Home.co.uk is higher than this at £2,645. Home.co.uk also publish the typical (median) rent for London which is currently £1,603 pcm.

It would be interesting to know how the figures compare when mortgage repayments are included in the calculations. Buyers must also factor in the risk that house values might fall further in the short-term and interest rates may rise.

See also: Mortgages, Property Information by Town and Postcode (inc. Rent Price Summaries)

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