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15 Jun 2021

Renting is Cheaper Than Buying for the First Time in Six Years

Renting has many benefits. It has always been a good option for flexible living. However, it has previously been associated with being the more expensive option, whilst buying a house is more of an investment. This has all changed following months of coronavirus-led property price rises. Research by the Hamptons shows that for the first time in six years, renting a property is cheaper than buying.

Why has this happened?

Despite the fact that rents in the country have increased by 7.1 per cent in the last year, rising house prices and higher loan-to-value (LTV) mortgage rates have increased the price of buying a home.

In early 2020, before the pandemic began, buying was cheaper than renting in every region of the UK. Buyers with a 10% deposit would be better off than renters by £102 a month. However, the tables have been turned. Research by Hamptons has uncovered that the average tenant is now better off. On average, they are paying £71 less per month in rent. This means they would have spent an average of £1,054 on rent each month, compared to £1,125 on mortgage payments – the first-time renting has been cheaper than buying since December 2014.

The supply and demand imbalance

As a result of housing demand, prices have increased. The lack of housing stock has exacerbated the demand for housing. In turn, widening the supply and demand imbalance.

First time Buyers - Increasing Buyer demand

As a result of government support schemes, there has been an influx of first-time buyers. Many first-time buyers don’t have a property to sell, which causes the housing stock to remain sparse. Although the market could return to a more normal level, the imbalance is predicted to remain. Meaning, the demand for rented accommodation will increase.

Location breakdown

Since the beginning of the coronavirus pandemic, London has experienced the most transformation with rental prices hitting a decade low.

Due to falling rents, a buyer who put down a 10% deposit on a house in the capital would have saved £123 per month on rent in March 2020. In May 2021, buyers will now pay on average £251 per month more than those renting.

Living in central London has a lot to offer in terms of social, business, and transportation amenities. However, the capital became a ghost town whilst under lockdown. As a result, demand plummeted, and the rental market became oversaturated. Both renters and buyers began to reconsider their purchasing requirements.

However, the rule doesn’t apply to every UK region. It remained cheaper to buy over rent only in the North East, North West, Yorkshire & Humber and Scotland. This is because across the north of England, especially in the North East, rental growth has hit a 10-year high.

This is great news for property investors, as the North East, North West and Yorkshire & Humber have some of the most affordable rental markets in the UK. Although it may not be more affordable to rent in those areas, property prices still remain exceedingly high. Therefore, rental demand also remains high in these areas, causing upward pressure on rents. From a property investment perspective, this is an ideal opportunity.

CityRise Verdict

In May of last year, rental demand fell as younger tenants returned to live with their family due to the pandemic. Also, work and leisure restrictions made city life less appealing. This is now changing as restrictions are being lifted.

We will begin to see an increase in tourism and businesses going back to normal. Students are also expected to return to face-to-face teaching in autumn. In turn, city centre living is becoming appealing once again and rental demand is at an all-time high.

Most importantly, with renting being cheaper than buying for the first time in six years, tenants are expected to stay in the rental market for longer. Due to this increased demand, rental prices are rising, meaning investors will get a larger ROI. Especially if investors are buying in northern regions. Rental demand is increasing in northern cities, and the properties are much more affordable. Therefore, investors can buy cheaper properties in prime locations projecting strong rental yields.

House prices are evidently higher than ever, so renting is becoming a much more feasible and affordable option. The government schemes do have the potential to close the gap between renting and buying. However, for the time being, the buy-to-let sector has never been more prosperous for investors.

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