There are now only four areas in the UK where it is cheaper to buy than rent
Renting is cheaper than buying a home for the first time in over six years, says Hamptons.
Prior to the pandemic, those buying with a 10% deposit would have saved £102 a month compared with renters, according to the research by the estate agency.
But last month, the average private renter was spending £71 a month less in rent.
There are now only four areas in the UK – North East, North West, Yorkshire and Humber, and Scotland – where it is cheaper to buy than rent.
This is in contrast to May last year, when younger adults returned to live with their families during the pandemic leading to a drop in rental demand.
Hamptons says the switch comes despite a 7.1% rise in average rents over the past 12 months, as 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, it is cheaper for a typical first-time buyer to rent than buy on a monthly basis as the average monthly rent is £1,054 compared with mortgage repayments at £1,125. It is the first time since December 2014 that renting is cheaper than buying.
The biggest shift since the start of the pandemic has been seen in London.
Falling rents there mean a buyer putting down a 10% deposit on a property in the capital will have gone from being £123 a month better off buying in March 2020, to spending £251 a month less on rent in May 2021, the report said.
The research does not include financial and other factors which potential first-time buyers will consider when deciding to rent rather than buy, or vice versa.
Aneisha Beveridge, Hamptons’ head of research, said the pandemic was responsible for reversing this six-year-long trend.
A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether, she said. 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.
Ms Beveridge added that it was likely that the balance would swing back somewhat towards buying, particularly as mortgage rates come down, but this would likely 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 LTV (loan-to-value) loans, she said. 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.