Is it cheaper to rent or buy?

For the first time in years, it’s cheaper to rent than buy property. Here’s what that means for you and whether it’s now better to rent than buy.

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Modern brick houses, built to traditional designs on a housing development in Northern England.

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It’s no secret that the UK is going through a bit of a housing boom. And with predictions that both prices and the number of transactions are set to rise still further, it seems that the bubble’s unlikely to burst any time soon. But one side effect of sky-high house prices is that it’s now cheaper to rent than buy property. 

How much cheaper is it to rent than to buy?

It’s £71 cheaper every month for first-time buyers to rent instead of buy. That figure comes from an assessment of the housing market by estate agent Hamptons. Hamptons’ data reveals that a first-time buyer with a 10% deposit could expect to pay £1,054 a month on rent compared to £1,125 on a mortgage. 

The stats defy the usual trend and it’s the first time in five years that it’s been cheaper to rent than buy a home. It’s a shift seen across most of the UK, and it’s currently cheaper to rent in seven out of 11 regions.

The only areas where it still remains better to buy are the North East, the North West, Yorkshire and Humber, and Scotland. 

Why is it cheaper to rent than buy a home right now?

A combination of reasons brought about by the pandemic means it’s now more cost-effective to rent than buy.

One of the key reasons is the lack of housing to meet demand. City dwellers are upping sticks and swapping urban life for more space and rural solitude. That demand has helped bolster house prices and fuel tough competition as buyers snap up homes that do come onto the market. 

Unsurprisingly, rent decreases in London have also played a large part in broadening the gap between renting and buying. The data from Hamptons confirms that first-time buyers in London have gone from being £123 per month better off by buying to spending £251 less on rent in May 2021. 

Another reason is that mortgage rates have also increased. This means repayments have crept up, particularly for those with a 95% LTV ratio, where monthly rent would cost 19% less compared to buying.

How much is the average rent in the UK?

The rise in house prices hasn’t meant a cut in rent. In fact, the average rental cost has actually increased by 4% from last year and is up 0.1% in May from April, according to data from HomeLet. That year-on-year increase rises to 6.4% if you strip out London rental costs.

The increase brings the average cost of rent to £997 per month in the UK. 

And while rents in London have fallen, they’re still 85% higher compared to the rest of the UK. 

Where are the cheapest flats to rent in the UK?

HomeLet’s rental index shows that the North East is the cheapest place to rent as of May this year. There, you can expect to pay £560 per month, which is an annual increase of 6.3%. 

The second cheapest place to rent is Northern Ireland. Here monthly rent will set you back an average of £678, a 4% year-on-year rise. That’s closely followed by Wales, where the average rent is £698, a 7.7% increase from last year. 

So, is it better to rent or buy?

At this exact moment in time, statistics show that renting is cheaper than buying. But, that doesn’t mean it’s better than buying in the long run. 

As we’re constantly reminded, we’re living in unprecedented times. And what’s happening in the housing market could simply be a knee-jerk reaction to events. 

In normal times, it almost always makes more financial sense to buy your own home if you have the means (and desire) to do so. 

Renting might save you some cash right now, but paying into a mortgage has long-term benefits. 

So, if you’re toying with the idea of becoming a homeowner, take a look at the best place to buy your first home

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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