Rent now cheaper in London than buying

It is now cheaper to rent in London than to buy your own home, for the first time since 2017.

For the first time in four years, it is now cheaper to rent in London than own a home. This is one of the lasting after effects created by the Covid-19 global pandemic, which has had an impact on the property market.

Londoners in rental accommodation are currently £251 better off after paying their monthly rent, than home-owners paying out their mortgage repayments, a new industry study reveals. Strong house price growth has also added to the cost of buying and owning a home. The typical costs of buying versus renting are based on someone having a two-year fixed-rate mortgage and calculated using average mortgage rates.

This is a complete reversal of the trend seen last spring before Covid-19 swept the country and resulted in falling rent in London that made renting cheaper than buying - anywhere else in the country, according to this recent report. Based on the monthly cost of buying relative to renting, with a 10% and a 90% loan-to-value mortgage, owning a property was £123 cheaper than renting back in March 2020, just ahead of the national lockdown restrictions and property market closures caused by the Covid-19 virus.

In London, It’s £251 cheaper to rent, followed by the East (£117) and South West (£108). However, it’s still significantly cheaper to buy than rent in Scotland (-£130) and the North East of England (-£72) once you have a deposit and have paid stamp duty, or the equivalent.

In addition, the Bank of England lowering the base rate to 0.1% in response to the pandemic, has resulted in lenders becoming more cautious and therefore, made some increases to mortgage rates because of the sudden high demand to buy when the property market reopened last May. Lenders also withdrew high loan-to-value products that typically helped first-time buyers get on the property ladder.

For a first-time buyer with a 10% deposit, it’s £71 per month cheaper for them to rent a home, at £1,054 on rent compared to £1,125 on mortgage repayments.

The last time it was cheaper to rent rather than own your own property was four years ago in June 2017, after the peak of the housing market in London and following the Brexit vote, which is when the rental market softened.

It’s expected however, that the balance will adjust itself again in favour of buying, especially as mortgage rates come down. And while interest rates are falling, they’re still considerably above where they were pre-pandemic on higher Loan To Value loans. In spite of this, the likelihood is that the gap between renting and buying will narrow over the remainder of 2021 and move back towards longer-term levels next year.