Renting is cheaper than buying in seven UK regions including London for the first time since December 2014, according to research from Countrywide-owned letting agent Hamptons.
The pandemic-induced increase in mortgage rates, as well as the temporary withdrawal of higher loan-to-value products from the market, have both played a part in widening the gap between buying and renting.
On the eve of the pandemic, a 10 per cent deposit holder with a 90 per cent loan-to-value mortgage was £102 per month better off buying a property than renting it.
But as of last month (May), this same first-time buyer would have saved £71 per month by renting the same property, rather than buying it.
“Over the last 12 months we’ve seen property price inflation approaching 10 per cent," Paul Adams, Pepper Money's sales director, told FTAdviser, citing Halifax's latest House Price Index.
He also cited the fall in rental demand across city centres. In London, Hamptons data suggests rent prices have fallen 20.3 per cent over the course of the health crisis.
But Charlotte Nixon, proposition director at Quilter Financial Planning, said: “Even if renting does turn out to be cheaper in the short term, a renter is not building up any equity in the property they are living in and instead are just helping their landlord pay off that properties' mortgage.”
She added the mortgage industry was playing “a waiting game”, as it stands by for the end of furlough and the re-introduction of stamp duty. “It’s a bit of a false market at the minute,” she said.
Hamptons’ research head, Aneisha Beveridge, agreed the gap between renting and buying would close over the remainder of this year, “moving back towards longer-term levels in 2022”.
Things are already changing. In more recent months, mortgage lenders have been cutting their rates and re-introduced higher loan-to-value products to the market.
Last year, 20-25 per cent deposits became the norm due to lenders’ conservative risk appetites. But in the last six months, 5-10 per cent deposits have become more widely available again.
Hamptons bases its figures on a person putting down a 10 per cent deposit and securing a fixed two-year 90 per cent loan-to-value mortgage.
But as Aaron Strutt, product director at Trinity Financial, pointed out: “No-one was taking these mortgages over the time period [i.e. the last year]”.
Hamptons’ research suggested the average annual percentage rate stood at 3.32 per cent in May 2021, compared with 1.94 per cent in March 2020.
Fixed rate prices are currently “pretty expensive” compared to a year ago because lenders have just come back into the market, Strutt explained.
Both Nixon and Strutt also highlighted the measures buyers can take to bring down the costs of their mortgages. “You could take some of it out on interest only, for example,” said Strutt.
Nixon added: “Those with larger deposits may be able to access much cheaper deals which would ultimately be much cheaper than the average rental costs.”