Pandemic Shifts UK Property Market in Favour of Renters

For the first time in 6 years, it is now cheaper to rent than buy in most parts of the United Kingdom, with the exception of four regions, where buying remains the more attractive option. 

Before the pandemic took hold of the UK in March 2020, figures indicated that people buying with a 10% deposit would have been better off than renters by £102 a month. However, last month, May 2021, figures found the average private renter was better off, spending £71 a month less.

The four regions of exemption in the UK where it is cheaper to buy than rent, are the North East, North West, Yorkshire and Humber, and Scotland.

The UK rental market, in general, has been under some strain over the past 14 months, as rental demand in many areas, particularly London and the South-East, dropped due to a number of reasons including; many younger adults moving back home to live with their families during lockdown, along with work and leisure restrictions, making city living substantially less attractive!

The trend comes as a surprise to many, with an increase of 7.1% nationally in average rents over the past 12 months, which has been driven by strong house price growth, coupled with the increase in higher loan-to-value mortgage interest rates, that have added to the costs of buying and owning a house. 

A typical first-time buyer will now find it cheaper to rent than buy on a monthly basis, the average rental in the UK is £1,054, compared to £1,125 on mortgage repayments.

London has experienced the largest shift, which is to be expected. According to Hamptons, one of the leading real estate firms in the UK, evidence indicates that falling rents in the capital have made renting cheaper relative to buying by a bigger margin than anywhere else. A buyer putting down a 10% deposit on a property in London will have gone from being £123 per month better off buying in March 2020 to now spending £251 a month less on rent in May 2021. With rents still falling, it is very much a tenants’ market, the differential will continue growing. 

For a buyer with a 5% deposit, renting becomes an even cheaper option than buying. This is due to the increase in interest rates on 95% LTV mortgages, over the course of the pandemic. In this scenario, a buyer putting down a 5% deposit would on average spend £195 per month more than if they continued renting. 

Amid a range of attractive mortgage deals, the stamp duty holiday, and a strong desire among buyers for more space and a change in lifestyle, the pandemic has prompted frenzied activity in the property market in many parts of the country with 704,000 homes currently listed on Rightmove as “sold - subject to contract”.

With the above in mind and with the costs of renting relative to buying at a very low level, it is inevitable that the balance will swing back in favour of buying, as mortgage interest rates come down. However, it is anticipated this will be partly offset by rising house prices. Whilst we see interest rates falling, they’re still substantially higher than pre-pandemic times on higher loan-to-value loans. 

In summary, it is predicted that the gap between renting and buying is likely to close over the remainder of this year, as the property market levels out, heading into 2022 and beyond.