Cost of renting worsens compared to buying

The new research looks at the asking prices of two-bedroom flats currently for sale and to rent in the 50 largest cities and towns around the country and mortgage payments are calculated assuming an interest-only mortgage at 5% p.a. to provide an effective comparison to renting.

In some locations, the higher cost of renting is staggering. In Milton Keynes rents exceed average mortgage servicing costs by 42% – with average monthly rents at £785 Milton Keynes renters are left £2,772 a year worse off compared to owners. Completing the top 3 places where buying is far more cost-effective than renting are Walsall and Birmingham which each have a 38% and 35% rental premium respectively. A further nine of the largest 50 towns and cities have average rents that exceed mortgage payments by over 20%.

Several factors are behind the increased cost of renting. The severe shortage of mortgages has kept many potential first-time buyers in the rental market resulting in high tenant demand, while the combination of stagnant house prices and low interest rates has reduced the monthly cost of home ownership.

Even in London, which has the highest asking prices in the country, buying is still the more cost-effective option. With an average rent of £2,252 per month in the capital, buyers stand to save £4,656 annually compared to renters.

However, there are still some locations where renting is more cost-effective than owning. In Plymouth, the average two-bed flat costs £581 per month to rent versus £156,435 to buy, leaving renting £71 a month cheaper than the average mortgage servicing cost. Following the buy-to-let boom with investors buying properties to rent out to the large student and military population, the extensive supply of rental property has put downward pressure on rents.

Nicholas Leeming, business development director, said: "While lenders maintain their vice-like grip on the mortgage market, more and more would-be buyers are forced to rent instead of getting onto the housing ladder. Rents will likely rise further as a result and renters will continue to pay a significant premium for being stuck in the sector.”

“While buying wins out over renting today, the impact of a possible rise in interest rates cannot be ignored. If interest rates were to increase by 1% and rents were to remain the same, renting would become more cost-effective in 78% of the locations studied.”

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0 thoughts on “Cost of renting worsens compared to buying

  1. Andrew Chard

    This article completely ignores the cost of service charges and insurance which the Landlord bears and the homeowner does too, but which the Tenant is spared. Add that in (and in some cases service charges are significant) plus the cost of maintaining the fabric of the building, wear and tear and cost of replacement of such items as washing machines etc and the sums look very different. Let’s stop making Landlords out to be greedy and start getting real about the fact that it is often better and cheaper to rent

  2. simon croft

    Interesting headline article, however, once you take into account purchase/ownership costs including, stamp duty, legal fees, insurance, maintenance, repairs, selling exit costs i am not sure that owning a property is truely the less expensive option at the present time. Yes, in a rising market there are advantages, but the ability to leave a rented property at the end of the contract and move to follow work or changed family circumstances has to be worth something, rather than remaining in a property that cannot be sold and is no longer suitable.

  3. Michael Edwards

    Interesting research which looks purely at cost of rent against cost of mortgage. Previous comment about service charges, building insurance etc is valid as is the fact that a home owners face costs for maintaining their property where as this is absorbed by the Landlord when you rent. There is also an intangible benefit to tenants who are not “locked in” to a property when they need to move as career development.