Renting a property is currently less expensive than buying in the UK – Why

In the UK, buying a house was cheaper than renting due to the exorbitant rental prices. However, in the last few months, this has changed drastically. Due to the after-effects of the Covid-19 pandemic on the UK housing market, the average price of rent has started to fall. In contrast, the average price of the property is continuously rising. As a result, for the first time in 6 years, it is cheaper to rent a place in the UK than to buy a property in the UK! 

Almost all the cities in the UK have been impacted. In Greater London, it is £251 cheaper to rent a place than buying a place. It is £54 cheaper to rent in the South East, whereas in the South West, it is £108 cheaper to rent. In Wales, it is a mere £11 cheaper to rent than to buy a property. In the East Midlands, it is a whopping £98 cheaper to rent a place, while in the West Midlands, it is just £35 cheaper to rent a property than buying one. Currently, there are only four areas in the UK where it is cheaper to buy a place than renting one – Scotland, North East and North West, Yorkshire and Humber. Let’s talk about why renting a property is currently less expensive than buying a property in the UK in 2021. 

The impact of Covid-19 

According to estate agents, Sittingbourne, renting has become cheaper than buying for the first time since December 2014. Since March 2020, on average, a tenant will spend £1054 to pay their monthly rent, whereas a homeowner will spend £1125 to pay off their 10 per cent deposit mortgage, which makes renting £71 cheaper than buying. Before March 2020, a homeowner paying a monthly mortgage after paying a 10 per cent deposit would be spending £102 less every month than the average tenant. So, if the average tenant was paying £1102 per month, a homeowner was paying £1000 per month as the mortgage. But, of course, this was the pre-Covid era where renting was more expensive than buying in the UK.

The change in demand

Before Covid-19, London was the hub for rental properties. However, as people were forced to stay indoors due to the multiple lockdowns, more and more people chose to shift out of the city centre and into the boroughs and suburbs to live in bigger houses with spacious gardens, all within a similar budget. So, as the demand for rental properties fell, the average price of rent started to fall too. However, due to the mini-boo in the housing market, the property price began to rise. However, most experts feel that as industries start to open up and work goes back to normal, we will see a rise in the price of rentals and an increase in rental demand, which will reverse the current trend.

The impact of rising interest rates

When the Covid-19 pandemic hit the UK, banks and lenders became very cautious about their lending criteria. They increased the rate of interest, and low-deposit mortgages almost became extinct. Also, the loan to value mortgage criteria became much higher. So, when the UK government announced the stamp duty holiday to boost the economy and the housing market, first-time buyers rushed to avail this deal of a lifetime. Despite the higher interest rates and the hefty deposits, the stamp duty suspension was a great deal for every first-time buyer. Essentially, it is the first-time buyers that pushed up the cost of paying the mortgage! Even when the interest rates started falling, they were not close to the interest rates of the pre-Covid era. And the loan to value ratio continued to remain high as per letting agents Sittingbourne. Once the mortgage rates start to come down, it is expected that the gap between buying and renting might come a little closer. 

The rising price of property

According to Halifax, the average price of a property in the UK stands at a whopping £261,743, which is a 9.5 percent increase since last year. Currently, the average price of property in the UK is the highest in the last seven years. Simply put, the price of property started to rise exponentially due to the sudden increase in demand. The suspension of the stamp duty holiday coupled with the government schemes such as Help to Buy and the Mortgage Guarantee Scheme gave a much-required boost to the housing market in the UK. As the demand for property started to increase while the supply remained relatively constant, the property price continued to rise.