Cost of renting rises further compared to home ownership
17th November 2010
- Buying more cost-effective than renting in 80% of British cities/towns
- Average renter pays 9.9% more than an owner with a 5% mortgage
- York most expensive to rent vs. buy, Aberdeen cheapest to rent vs. buy
New research from property search website Zoopla.co.uk reveals that renting a home is now more expensive than buying across 80% of Britain. The figure is up from 74% in July as asking prices have come down and rents have increased. And the average cost difference has also risen with rents now 9.9% higher on average than mortgage payments, compared to 8.7% in July.
The research compares current asking prices to average rents for two bedroom flats in the 50 largest cities and towns around the country. Mortgage payments were calculated assuming an interest-only mortgage at 5% p.a.
In some locations, the extra cost of renting is staggering. In York rents exceed mortgage payments by 39% - with average monthly rents at £978 York renters are left £3,270 a year worse off. A further thirteen of the largest 50 cities and towns saw rents exceed mortgage payments by more than 20%.
Several factors are behind the increased comparative cost of renting. The severe shortage in the availability of mortgage credit has kept many potential buyers in the rental market, resulting in high tenant demand whilst 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 most cost-effective option. The average rent of £2,121 per month is still high compared to the average asking price of £444,553, and buyers stand to save 14% annually compared to renters.
However, there are still some locations where renting is a better option than buying. In Aberdeen, where the average two-bed flat costs £833 per month to rent versus £254,618 to buy, renting is 21% cheaper than the average mortgage payment. This could be attributed to the strong salaries commanded by those who work in Aberdeen's thriving technology and energy sectors. More able to buy than most, they push house prices up compared to rents.
Nicholas Leeming, Commercial Director of Zoopla.co.uk, said: "Buying has always been somewhat cheaper than renting, but we're now seeing a real insider-outsider divide in the housing market. For those who are able to buy a home, costs are low, but for those who can't, costs are much higher - and the doorway to entry into the housing market is narrower than ever. The freezing up of credit has put home-ownership beyond the reach of many renters, and it's driving a larger and larger wedge between them and owner-occupiers."
While buying wins out over renting today, the impact of a rise in interest rates cannot be ignored. If interest rates were to increase by 1% and rents to remain the same, renting would become more cost-effective in 72% of the locations studied.
Top 10 locations where buying beats renting
| Rank | Location | Avg. Asking Price* | Avg. Monthly Rent* | Rental Premium** |
|---|---|---|---|---|
| 1 | York | £169,181 | £978 | 39% |
| 2 | Birmingham | £132,352 | £765 | 36% |
| 3 | Derby | £105,475 | £598 | 36% |
| 4 | Reading | £185,917 | £1,053 | 34% |
| 5 | Milton Keynes | £130,767 | £732 | 32% |
| 6 | Walsall | £91,324 | £502 | 32% |
| 7 | Hull | £116,716 | £641 | 24% |
| 8 | Dundee | £104,106 | £539 | 24% |
| 9 | Norwich | £130,031 | £673 | 23% |
| 10 | Bradford | £98,387 | £506 | 22% |
Source: Zoopla.co.uk
* 2 bedroom flats, November 2010
** % more than interest only mortgage payment at 5% p.a.
Top 10 locations where renting beats buying
| Rank | Location | Avg. Asking Price* | Avg. Monthly Rent* | Rental Discount** |
|---|---|---|---|---|
| 1 | Aberdeen | £254,618 | £833 | 22% |
| 2 | Swansea | £190,709 | £705 | 11% |
| 3 | Huddersfield | £130,465 | £510 | 6% |
| 4 | Edinburgh | £178,609 | £705 | 5% |
| 5 | Plymouth | £150,225 | £593 | 5% |
| 6 | Bristol | £188,135 | £753 | 4% |
| 7 | Bournemouth | £186,490 | £751 | 3% |
| 8 | Stockport | £144,142 | £584 | 3% |
| 9 | Oldham | £134,925 | £556 | 1% |
| 10 | Newcastle | £133,920 | £554 | 1% |
Source: Zoopla.co.uk
* 2 bedroom flats, November 2010
** % more than interest only mortgage payment at 5% p.a.
- Ends -
For further information, please contact PR Team on pr@zoopla.co.uk or +44 (0)20 3873 8770.
Notes to editors
About Zoopla.co.uk
Zoopla.co.uk is the UK's most comprehensive property website, focused on empowering consumers with the resources they need to make better-informed property decisions. We help our users make sense of the residential property market by combining property listings with market value data, local information and community tools.
Zoopla.co.uk was founded on the principles of transparency and efficiency and everything we do aims to make the market more effective for both property consumers and professionals alike. By combining free, instant value estimates for every UK home with sold prices, local market information and hundreds of thousands of properties available for sale and to rent, Zoopla.co.uk has rapidly become the ultimate destination for property consumers to search for property and do their market research. Our unique features allow users to gain an insight into the market and discover information they won't find anywhere else. And, as a result, we have become one of the most valued sources of both applicant and vendor leads for UK estate agents.
Launched in 2008, we are the fastest growing property website in the UK, now attracting over 12 million visits per month and are proud to have been awarded numerous accolades including being listed in the Top 10 UK Tech Companies (Guardian) and the Top 10 Most Innovative UK Companies (Smarta 100) as well as being voted the UK's Best Property Portal (Web User, Daily Mail Awards, Website of the Year).
Zoopla Limited is a privately held company with a highly experienced and proven management team, led by Founder and CEO, Alex Chesterman, and backed by well-respected angel investors and leading venture capital firms Atlas Venture (atlasventure.com) and Octopus Ventures (octopusventures.com).