Tenants paying 14% premium to rent
12th March 2013
- For a 2-bedroom flat, renting is almost £1,000 a year more expensive
- Now cheaper to service a mortgage than rent in 86% of cities in UK
- North dominate list of areas where renting more expensive than buying
Tenants pay 14% more on average in rent than owners pay in servicing mortgages, according to the latest research from property search website Zoopla.co.uk.
Zoopla’s analysis of the cost of renting compared to servicing a mortgage reveals that renting a typical two-bedroom property is £987 more expensive per year than paying an interest-only mortgage on an equivalent property.
The current average asking rent for two bedroom flats nationally is £669 per month, compared to an average asking price of £140,692. Servicing an interest-only mortgage at 5% would cost £7,035 pa, 14% less than the £8,028 paid by the average tenant for such a property. Using a 90% LTV interest-only mortgage at a typical Best Buy rate of 4.39%. , the premium paid by tenants is even higher. The average mortgage would stand at £126,623 with an interest cost of £463 per month, saving the average owner £2,463 a year (not including the cost of the 10% deposit).
The difficulties faced by first-time buyers in getting a mortgage have pushed up the cost of renting. Buying is now cheaper than renting across 86% of the UK’s cities, up from 84% one year ago. A north-south divide has also emerged in the cost of renting versus buying. Northern cities dominate the list of areas where it is the most cost-effective to buy with nine out of the top ten places where it is cheaper to buy than rent being in the north.
Hull tops the list of the most expensive places to rent compared to buying currently. Tenants there pay an eye-watering £2,855 a year more than owners - a rental premium of 62%. York and Peterborough complete the top three list of places where buying beats renting hands down.
Southern towns feature much more prominently in the list of areas where it is cheaper to rent than buy. Swansea tops the list of places where renting is more cost-effective than owning. On average, owners in the Welsh seaside town pay £1,169 per year more than tenants (a rental discount of 13%). Bournemouth, Stockport, Dundee, Edinburgh, Plymouth and Huddersfield are the only other places in the UK where renting is cheaper than buying currently.
Despite high property values in London – where buyers have to fork out £570,760 for an average two-bedroom property – owning is still 2% more cost-effective than buying, with owners £682 a year better off than renters.
Lawrence Hall of Zoopla.co.uk comments:: “As a general rule it is much more cost-effective to own a property than rent it. This is particularly true in the north, where a big gap has opened up between the cost of renting and owning. Would-be buyers in the north have found it harder to get a mortgage, which has forced more of them into the rental sector. This has had the dual effect of pushing up rents and keeping a lid on property values, making owing a great option, provided you can get a mortgage.”
Top 5 locations where buying beats renting
| Rank | Location | Avg. Monthly Rent* | Avg. Asking Price* | Rental Premium** |
|---|---|---|---|---|
| 1 | Hull | £624 | £92,667 | 61.6% |
| 2 | York | £997 | £149,354 | 60.2% |
| 3 | Peterborough | £650 | £104,141 | 49.8% |
| 4 | Milton Keynes | £815 | £140,984 | 38.7% |
| 5 | Derby | £568 | £100,609 | 35.5% |
Source: Zoopla.co.uk
* Based on 2 bedroom flats on the market for sale/rent in March 2013
** % variance between average monthly rent and average monthly cost of 5% p.a. interest-only mortgage
Top 5 locations where renting rules
| Rank | Location | Avg. Monthly Rent* | Avg. Asking Price* | Rental Discount** |
|---|---|---|---|---|
| 1 | Swansea | £672 | £184,658 | -12.7% |
| 2 | Bournemouth | £789 | £207,594 | -8.8% |
| 3 | Stockport | £559 | £141,820 | -5.4% |
| 4 | Dundee | £533 | £130,471 | -2.0% |
| 5 | Edinburgh | £711 | £173,438 | -1.6% |
Source: Zoopla.co.uk
* Based on 2 bedroom flats on the market for sale/rent in March 2013
** % variance between average monthly rent and average monthly cost of 5% p.a. interest-only mortgage
- Ends -
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