Rents now cheaper than mortgages as market boom fuels house prices


Monthly rents are now cheaper than mortgages as the current market boom has reversed a five-year trend.

In March 2020, on the eve of the pandemic, a purchaser with a 10% deposit would have been GBP102 per month better off buying than renting.

But even though rents in the UK have grown 7.1% over the last 12 months, strong house price growth coupled with increases in higher loan-to-value (LTV) mortgage rates have added to the cost of buying and owning a home.

As a result, a typical first-time buyer will now find it 7% cheaper to rent than buy on a monthly basis, according to research by Hamptons.

In May 2021 it was cheaper to rent than buy in seven of the UK’s 11 regions, with North East, North West, Yorkshire & Humber and Scotland bucking the trend.

London has seen the largest shift since the start of the pandemic. A buyer putting down a 10% deposit on a property in the capital will have gone from being GBP123 per month better off buying in March 2020, to spending GBP251 per month less on rent in May 2021.

Falling rents in the capital have made renting cheaper relative to buying by a bigger margin than anywhere else. And with rents still falling, the differential looks set to continue growing, analysts said.

“With the cost of renting relative to buying at the lowest level since at least late 2013, it is likely the balance will swing back somewhat towards buying, particularly as mortgage rates come down,” analysts at Hamptons noted.

“However, this is likely to be partly offset by rising house prices. As such we expect the gap between renting and buying to close over the remainder of this year, moving back towards longer-term levels in 2022.”

Housebuilders have been recovering from the plunge suffered in March 2020 when the COVID-19 outbreak hit UK markets, although they are all still below pre-pandemic levels.

Over the past 12 months, Vistry PLC (LON:VTY) has surged an impressive 68%, Barratt Developments plc (LON:BDEV) and Redrow PLC (LON:RDW) have climbed 47% and 41% respectively, while Persimmon (LON:PSN) and Bellway PLC (LON:BWY) are up 36% and 35% respectively.

Taylor Wimpey PLC (LON:TW.) and Berkeley (LON:BKG) have somewhat lagged and have grown only 14% and 13% respectively.

Residential landlord PRS Reit PLC (LON:PRS) has also performed well, rising 38% and well above pre-pandemic levels, while Grainger PLC (LON:GRI), instead, is up only 4% and yet has to recover.

Peer KCR Residential Reit PLC (LON:KCR) has taken a turn for the worse, plunging 47% over the past 12 months.

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