Are private rent rates out of sync with property prices?

Despite the fact that the UK government induced the house price buying frenzy back in the 1980s with the “right to buy” on council property, it seems those days are over. A report today by Zoopla has highlighted the growing gap between private rental rates and average mortgages. The variation between the two is quite marked across the country and there is only one city in the UK where it is cheaper to rent a property than buy.

Renting v Buying

It will come as no surprise to learn that London is the only city in the UK where it is cheaper to rent a home than it is to buy one. The average monthly mortgage on a two-bedroom flat in London is around £2168 compared with a monthly rental rate of £1840. Even if London property prices have softened of late there is no doubt that they are still relatively detached from the rest of the UK and ultimately a market within a market.

At a time when UK base rates are rock bottom, even if they have started the trend upwards, it is interesting to see yet more upward pressure on rental rates. It may well be that UK government changes to the mortgage industry in recent times are starting to hit home, perhaps lenders are more concerned about the short to medium term outlook for the UK or simply potential homeowners are worried about taking on a mortgage at this moment in time.

Looking across the country

If we look at median monthly rental rates against monthly mortgage repayments (based on an 85% LTV) there are some interesting situations. On the surface it seems as though rental rates in Glasgow are the most expensive in the UK compared to average mortgage rates in the city. They work out at £675 a month against mortgage rates of £377 a month, Bradford is £497 against £290, Dundee £545 against £320 with Warrington making up the top 10 at £593 against £396.

In some ways it may be a little misleading to compare current mortgage rates against current rental rates because of historically low UK base rates. However, it does beg the question, why are we not seeing a greater shift away from private rental properties towards homeownership?

Buy to let market

While the buy to let market is simply based upon supply and demand, the fact that rents seem to be so detached from mortgage rates probably backs up the UK government’s recent tightening of regulations and introduction of new taxes. Challenges in the UK employment market may also mean more people are forced to move around the country for employment opportunities hence unable to place a firm foot in one city and forced into the private rental market.

It would be interesting to see a comparison between rental rates and mortgage payments if UK base rates were anywhere near for example traditional levels of 4%. Would we see yet another shift towards the rental market? Will rental rates be pushed higher as buy to let profit margins are reduced by additional taxes and investors leave the market?


There is a lot going on in the UK private rental and homebuyer market and when you do throw Brexit into the mix this confusion and concern certainly does not help. Looking at the situation from a distance, you have to wonder why anybody would pay £675 a month for a two-bedroom property in Glasgow when they can buy their own for £377 a month. However, perhaps we are not giving UK homebuyers enough credit and many may be savvy enough to look forward to a time when UK interest rates return to more traditional levels?

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