Cheaper to Buy than Rent in 47 out of 50 British Towns

Renting a home is cheaper than buying in just three of Britain’s 50 biggest towns and cities, according to a new study.
The findings highlight the stark injustice and worsening situation for millions of people priced out of the property market.

A year ago, it was only cheaper to buy in 40 out of 50 towns.

As the banking industry, rocked by the financial crisis, has tightened lending criteria on mortgages and demanded bigger deposits, it has left many more would-be first-time buyers stuck on the sidelines.

This has forced many more people to rent rather than buy, and spurred landlords to cash in on the rising demand and charge tenants more.

Average rents have been on the rise for most of 2010 and 2011.

Meanwhile the UK bank rate has been pinned down to 0.5 per cent for nearly three years, keeping mortgage repayments exceptionally cheap for those already on the property ladder.

Swansea, Plymouth and Bournemouth are the only three locations included in the study where renting works out cheaper than buying a property, according to the study by property website Zoopla.

Milton Keynes was named as the place where buying a home was the most cost-effective compared with renting, with renting being 36% more expensive than owning, leaving renters typically £2,436 a year worse off.

In London, renting is 31% more expensive than the cost of ownership, leaving renters paying £6,888 annually on average compared with owners.

Nicholas Leeming, business development director at Zoopla.co.uk, said: ‘The shortage of financing, especially for first-time buyers, has pushed demand for rental property through the roof.

‘But for those lucky enough to be in a position to get a mortgage, there may never be a better time to buy.’

However, any rise in interest rates or a fully-blown second credit crunch  could rapidly and dramatically alter the affordability of UK property, sending mortgage repayments soaring for new borrowers in particular.

Markets currently predict no rise in the UK base rate until 2015 but the best rates on mortgage trackers have risen in recent months in reaction to the worsening situation in the eurozone, which threatens another banking crisis.

Renting vs buying

Renting vs buying
Britain’s record low interest rates has been largely only of benefit to those already sitting on substantial amounts of equity in their homes and therefore able to offer up the typical 25 per cent to 40 per cent deposits needed to get the best deals when remortgaging.

For some, they have enjoyed dirt-cheap credit even without substantial equity. If they took one of the overly generous deals on offer in the credit boom – mortgages that track the base rate with only a slim premium were not uncommon – they might today still be paying between 0.5 per cent and 1.0 per cent.

And those who borrowed from Nationwide Building Society before the spring of 2009 continue to benefit from the lender’s pledge to only charge 2 per cent above base rate, leaving hundreds of thousands of borrowers paying just 2.5 per cent.

Nationwide’s standard variable rate for customers who have joined it since then is 3.99 per cent.

Zoopla based its research on buying a two-bedroom flat paying a rate of 5 per cent but taking an ‘interest-only’ deal, which is significantly cheaper than a ‘repayment deal’, and offering no deposit. It says these were the best assumptions to give a fair comparison for the real cost of finance.