The cost of home ownership is cheaper than renting in 84%, that is 42 of the top 50 towns and cities in Britain, according to new research.
This figure is up on one year ago when it was cheaper to service a mortgage rather than pay rent in 80% of towns across the country, the research from property website Zoopla shows.
An ongoing shortage of accessible mortgages and the fall in wages in real terms has created difficulties for first time buyers resulting in a rise in demand for rental properties and pushing up average rents across Britain. It now costs 14% more per month on average to rent a home compared to servicing a mortgage on an equivalent property.
The average rent across Britain now stands at £1,785 per calendar month, up 2.7% since February. Milton Keynes, Dundee and Stoke on Trent top the list of places where owning beats renting by a large margin. At the other end of the spectrum, in Aberdeen, Bournemouth and Swansea renting is by far the better option from a cost perspective.
In London, renting is 21% more costly on average than servicing a mortgage with the average asking price for a two bedroom flat in the capital currently at £474,979 and the average rent on an equivalent property at £2,500 per month. With an interest only mortgage at 5% per annum, owners are £6,250 per year better off than renters in the capital.
‘The climbing cost of renting is exacerbating the problems the property market currently faces. Higher rental costs leave less disposable income for renters to save for deposits. The problem will only ease if rental prices fall or mortgage availability improves dramatically, leaving the ball is firmly in the court of Britain’s lenders,’ said Nicholas Leeming of Zoopla.
To compare the cost of buying versus renting, Zoopla analysed the current asking prices and rents of over 84,000 two bedroom flats currently on the market, comparing the rental cost to the cost of ownership based on servicing an interest only mortgage at 5% per annum.
Mortgage payments are calculated assuming a mortgage rate of 5% per annum to provide an effective comparison to renting. The analysis used an interest only mortgage rate in the comparison as the interest on a mortgage is the effective cost of financing living in that home.
It also assumed a 100% LTV ratio to do a fair and simple comparison of the cost of financing versus the cost of rent.