Renting now cheaper than buying a home, Hamptons says

It is cheaper to rent a property than it is to buy a home for the first time in more than six years, says Hamptons.

Research by the estate agency suggests that before the pandemic began in March 2020, people buying with a 10% deposit would have been better off than renters by £102 a month.

But last month, it found the average private sector tenant was better off, spending £71 a month less in rent.

There are now only four areas in the UK where it is cheaper to buy than rent.

They are the North East, North West, Yorkshire and Humber, and Scotland.

This is in contrast to May last year, when rental demand dropped as younger adults returned to live with their families during the pandemic and work and leisure restrictions made city living less attractive.

In early 2020, it was cheaper to buy instead of renting in every nation or region in the UK.

London's shift

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, a typical first-time buyer will now find it cheaper to rent than buy on a monthly basis, with a monthly average of £1,054 spent on rent compared with £1,125 on mortgage repayments - the first time since December 2014 that renting has been cheaper than buying.

London has seen the largest shift since the start of the coronavirus pandemic.

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.

There are, of course, a host of other financial and practical factors which potential first-time buyers will consider when deciding to rent rather than buy, or vice versa, which are not captured in this research.

How much cheaper is it to rent, than buy?

• Greater London - £251 cheaper

• South East - £54 cheaper

• South West - £108 cheaper

• East - £117 cheaper

• East Midlands - £98 cheaper

• West Midlands, £35 cheaper

• Yorkshire and the Humber - £5 more expensive

• North West - £4 more expensive

• North East - £72 more expensive

• Wales - £11 cheaper

• Scotland - £130 more expensive

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."