"It is likely the balance will swing back somewhat towards buying, particularly as mortgage rates come down. However this is likely to be partly offset by rising house prices."
For a first-time buyer with a 10% deposit, it was £71 per month (or 7%) cheaper for them to rent a home in Great Britain in May 2021 than it was to buy it. This means they would have spent a monthly average of £1,054 on rent compared to £1,125 on mortgage repayments.
This is in contrast to March 2020 – the eve of the pandemic - when a purchaser with a 10% deposit would have been £102 per month better off buying than renting.
Despite rents in Great Britain rising 7.1% over the last 12 months, strong house price growth coupled with increases in higher LTV mortgage rates have added to the cost of buying and owning a home.
In early 2020 it was cheaper to buy than rent in every region of the country. However, since the onset of the pandemic, this trend has reversed. In May 2021 it was cheaper to rent than buy in seven of Great Britain’s 11 regions. Three northern regions (North East, North West, Yorkshire & Humber) and Scotland bucked the trend and were the only places where it was still cheaper to buy.
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 £123 per month better off buying in March 2020, to spending £251 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.
For buyers with just a 5% deposit, renting becomes even cheaper than buying on a monthly basis. This is in part due to the increase in interest rates on 95% LTV mortgages over the course of the pandemic. A buyer putting down a 5% deposit will on average spend £195 per month (or 19%) more than if they had carried on renting.
Aneisha Beveridge, head of research at Hamptons, said: “The pandemic has reversed a six-year trend which now makes it cheaper to rent than buy a home. A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether. 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.
“It is likely the balance will swing back somewhat towards buying, particularly as mortgage rates come down. 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 loan-to-value 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.”
