Residential tenants in the UK pay 14% more on average in rent than owners pay in servicing mortgages, according to new research released today. An analysis of the cost of renting compared to servicing a mortgage reveals that renting a typical two bedroom property is £987 more expensive per year than paying an interest only mortgage on an equivalent home.
The report from property search website Zoopla says that the current average asking rent for two bedroom flats nationally is £669 per month, compared to an average asking price of £140,692. It points out that servicing an interest only mortgage at 5% would cost £7,035 per annum, 14% less than the £8,028 paid by the average tenant for such a property. Using a 90% LTV interest only mortgage at a typical Best Buy rate of 4.39%, the premium paid by tenants is even higher. The average mortgage would stand at £126,623 with an interest cost of £463 per month, saving the average owner £2,463 a year, not including the cost of the 10% deposit.
It says that the difficulties faced by first time buyers in getting a mortgage have pushed up the cost of renting. Buying is now cheaper than renting across 86% of the UK’s cities, up from 84% one year ago. A north-south divide has also emerged in the cost of renting versus buying. Northern cities dominate the list of areas where it is the most cost effective to buy with nine out of the top ten places where it is cheaper to buy than rent being in the north.
Hull tops the list of the most expensive places to rent compared to buying currently. Tenants there pay £2,855 a year more than owners, a rental premium of 62%. York and Peterborough complete the top three list of places where buying beats renting hands down.
Quote from PropertyCommunity.com : “Almost 72% of private property landlords were more confident about the UK buy to let market in April than in the previous month of March, research shows.”
Southern towns feature much more prominently in the list of areas where it is cheaper to rent than buy. Swansea tops the list of places where renting is more cost effective than owning, on average, owners in the Welsh seaside town pay £1,169 per year more than tenants, a rental discount of 13%. Bournemouth, Stockport, Dundee, Edinburgh, Plymouth and Huddersfield are the only other places in the UK where renting is cheaper than buying currently.
Despite high property values in London, where buyers have to fork out £570,760 for an average two bedroom property, owning is still 2% more cost effective than renting, with owners £682 a year better off than renters. ‘As a general rule it is much more cost effective to own a property than rent it. This is particularly true in the north, where a big gap has opened up between the cost of renting and owning,’ said Zoopla spokesman Lawrence Hall.
‘Would be buyers in the north have found it harder to get a mortgage, which has forced more of them into the rental sector. This has had the dual effect of pushing up rents and keeping a lid on property values, making owning a great option, provided you can get a mortgage,’ he added.