Cost of renting remains far less attractive than home ownership
3rd March 2011
- Average renter pays 10.5% more than an owner with a mortgage at 5% p.a.
- More cost effective to own as opposed to rent in 8 of every 10 British towns/cities
- Milton Keynes better to buy not rent, but Plymouth better to rent rather than own
Renting a home now costs 10.5% more on average than servicing a mortgage, according to leading property website Zoopla.co.uk. New research from the property search website reveals that renting a home is now a more expensive option than owning in 80% of Britain.s towns and cities, and the cost difference has been rising steadily since the middle of last year, when renting was 8.7% more expensive.
The 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 of Zoopla.co.uk, commented: "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..
Full list of the top Zoopla.co.uk 50 rent/buy locations
Top 10 locations where renting beats buying
| Rank | Location | Avg. Asking Price | Avg. Monthly Rent | Rent vs Buy* |
|---|---|---|---|---|
| 1 | Plymouth | £156,435 | £652 | -10.9% |
| 2 | Huddersfield | £130,109 | £542 | -10.7% |
| 3 | Swansea | £178,455 | £744 | -10.2% |
| 4 | Aberdeen | £215,234 | £897 | -7.4% |
| 5 | Oldham | £135,445 | £564 | -5.9% |
| 6 | Edinburgh | £175,540 | £731 | -5.1% |
| 7 | Bournemouth | £184,773 | £770 | -4.7% |
| 8 | Bristol | £182,968 | £762 | -4.2 |
| 9 | Lincoln | £134,601 | £561 | -0.1 |
| 10 | Stockport | £140,777 | £587 | -0.1 |
Source: Zoopla.co.uk (Feb, 2011)
* % variance between average monthly rent and average monthly cost of 5% p.a. interest-only mortgage
Top 10 locations where buying beats renting
| Rank | Location | Avg. Asking Price | Avg. Monthly Rent* | Rent vs Buy* |
|---|---|---|---|---|
| 1 | Milton Keynes | £132,919 | £785 | 42% |
| 2 | Walsall | £89,683 | £514 | 38% |
| 3 | Birmingham | £129,350 | £725 | 35% |
| 4 | Reading | £184,592 | £1,030 | 34% |
| 5 | Derby | £105,537 | £557 | 27% |
| 6 | Northampton | £107,809 | £568 | 26% |
| 7 | York | £172,807 | £901 | 25% |
| 8 | Coventry | £106,680 | £553 | 24% |
| 9 | Preston | £107,128 | £547 | 23% |
| 10 | Peterborough | £112,600 | £567 | 21% |
Source: Zoopla.co.uk (Feb, 2011)
* % variance between average monthly rent and average monthly cost of 5% p.a. interest-only mortgage
- Ends -
For further information, please contact PR Team on pr@zoopla.co.uk or +44 (0)20 3873 8770.
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