Since the start of the pandemic there’s been a number of trends driving the UK’s housing market. Many property owners in cities and towns have moved out to more rural locations seeking extra space while room renovations, home offices and new kit for the garden have also been high on the wish list.
The housing market has boomed in the last year with average prices across the UK rising at their fastest pace since the lead up to the financial crisis in August 2007 – up 10.2% in the year to March, the Office for National Statistics (ONS) said in its monthly report.
Another major trend to emerge is a “pandemic-led shift” that has made renting cheaper than buying for the first time in more than six years, according to data by estate agent Hamptons.
Aneisha Beveridge, Hamptons’ head of research, said the pandemic was responsible for reversing this six-year-long trend, the BBC reports. “A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether,” she said. “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.”
£71 per month less to rent
For the past five years, on a monthly basis buying a home has been cheaper than renting. In March 2020 a buyer with a 10% deposit would have been £102 per month better off buying than renting. “But the pandemic reversed this trend,” Hamptons said.
In May it was £71 per month (7%) cheaper for a first-time buyer with a 10% deposit to rent a home in the UK than it was to buy. “They would have spent a monthly average of £1,054 on rent compared to £1,125 on mortgage repayments.”
Rents have risen by 7.1% in the past 12 months, but house price growth and an increase in higher loan-to-value (LTV) mortgage rates have added to the cost of buying and owning a home.
Which regions are cheaper to rent?
Early last year it was cheaper to buy than rent in every region of the UK. But last month it was cheaper to rent in seven of the 11 regions – only the North East, North West, Yorkshire and the Humber, and Scotland bucked the trend.
London has seen the “largest shift since the start of the pandemic”, Hamptons revealed. A buyer putting down a 10% deposit on a property in the capital will have gone from being £123 per month better off buying in March 2020, to spending £251 per month less on rent in May 2021.
How much cheaper is renting?
- Greater London: £251 cheaper
- South East: £54 cheaper
- South West: £108 cheaper
- East: £117 cheaper
- East Midlands: £98 cheaper
- West Midlands: £35 cheaper
- Yorkshire and the Humber: £5 more expensive
- North West: £4 more expensive
- North East: £72 more expensive
- Wales: £11 cheaper
- Scotland: £130 more expensive
Rents hit record high
Rental growth has hit a new record high and in May the average cost of a newly let rental home in the UK rose to £1,054pcm – up 7.1% on the same time last year. Last month’s record growth rate was due to “huge spikes in prices for larger properties”, The Daily Telegraph reports.
Hamptons said May’s data marked the fastest rate of growth since its records began in 2013, surpassing the previous peak of 7% in December 2014. Rents in the South East and South West hit double digits for the second consecutive month, rising 13% and 11.5% respectively, while London continued to be the only region where rents fell (-0.5% year-on-year).
What happens next?
With the cost of renting relative to buying at the lowest level since late 2013, it is likely the balance will “swing back somewhat towards buying, particularly as mortgage rates come down”, Beveridge said.
“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 LTV 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.”
Similar trend in the States
It’s not just in the UK where renting is cheaper than buying – it’s also the case in the United States. According to a study by LendingTree, renting costs less per month in the 50 largest metropolitan areas in the US, The New York Times reports.
In its report, LendingTree said that on average renting is $606 (£430) cheaper than owning across the nation’s largest metros. “New York, San Francisco and San Jose are the metros where the spread in costs between renting and owning a home with a mortgage is the widest,” the report said. “In these three metros, it’s about $1,200 (£852) cheaper, on average, to rent versus to own a home while paying off a mortgage.”
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