Rental round-up: cheaper to rent than to buy in London

agent gives keys to tenant

Research by property portal Zoopla suggests it is cheaper to rent than to buy a property in over half (54%) of UK cities.

This comes on the back of rental market reports that show that rents are rising at a slower pace, with London’s tenants finding rents fairly static and, according to HomeLet’s research, falling for the first time in over seven years.

Key stats at a glance:

  • Office for National Statistics (ONS) Index of Private Housing Rental Prices – UK rents up by 1.8% over the year to April 2017.
  • HomeLet Rental Index – UK rents up by 0.4% over the year to April 2017.
  • Your Move Buy to Let Index – rents up 0.63% in England and Wales over the year to March 2017.
  • Zoopla Monthly rent is less expensive than monthly mortgage repayments in 54% of British cities (a rise of 14% since October 2016).

 

Zoopla researched the monthly cost of renting a two-bedroomed home, compared to servicing a mortgage in Britain’s 50 biggest cities. It found it is now cheaper to rent in 54% of cities. This compares with data from October 2016, when it was only more cost-effective to rent in 40% of cities.

Nationally, the average monthly rental payment on a two-bedroom home is typically £690 - £47 less a month than those making mortgage repayments of £737 (for buyers with a 90% LTV mortgage and an average asking price of £147,233).

Unsurprisingly, the top place to rent rather than buy was London, with the average monthly rental cost at 47% (£1,861) less than the average mortgage repayment (£3,001 a month). This is followed by Cambridge, at 30% (£389 per month) less to rent than have a mortgage, and Brighton, where renting is 27% (£377 per month) cheaper than owning a home.

Glasgow comes top when it comes to the best place to buy rather than rent, with the average mortgage repayment 31% (£174) cheaper than monthly rent, followed by Dundee, where servicing a mortgage is 29% less (£549) per month.

 

Zoopla’s research comes on the back of rental indices, which show that rents are not going up as fast as they were – especially in London.

The Office for National Statistics’ (ONS) Index of private housing rental prices in Great Britain for April 2017 reported that rents went up by 1.8% - down from 2% in March. This means that a property that was rented for £500 a month last year cost £509 in April 2017.

While rents in England mirrored the national average of 2%, in Wales rents went up by just 0.7% and Scotland saw zero growth – a similar picture to March’s figures.

Slowdown in London

Londoners continue to see rental growth slow down, with rents up by 1.4% over the year – compared with 1.6% in the year to March.

The ONS also looked at the wider picture of how private rents have performed between January 2011 and April 2017, revealing that UK-wide rents have gone up by 14.6% over the past six years. But it points out this has been driven by rents rising in the capital. When you take London out of the equation, private rental prices in the UK have risen by 10.5%.

However, it reports that rental growth has been slowing down since the end of 2015, with London driving this downward trend.

The HomeLet Rental Index also highlights how London rents are softening. It reports that rents on new tenancies in London fell by 1.2% in April compared to a year ago – the first time that rents have dropped since December 2009. This puts the average monthly rent in the capital at £1,519 – down from £15,546 in March.

Meanwhile, rents nationwide went up by 0.4% over the year, with tenants typically paying £904 per calendar month. This is the lowest rent rise since February 2010. However, if you take London out of the equation, UK rents are a more affordable £754. It adds that average rents have gone down in the South East for the past four months.

Your Move Buy to Let Index also reports that rents in London have fallen. The average rental property in the capital was let for £1,203 during March 2017. This is 7.5% lower than the same point last year. It reports that the East of England is now the most expensive place to rent a property outside London. Here, the average property was let for £883 in March 2017 and prices are now 7.4% higher than in March 2016.

Outlook is ‘flat’

Meanwhile, the Royal Institute of Chartered Surveyors (RICS) April 2017 Residential Market Survey shows tenant demand rising moderately. It says that “momentum does appear to have faded over the past six months”.

It adds that, landlord instructions were relatively flat, with tenant demand stabilising across London, ending a nine-month period when demand had deteriorated. Surveyors and property professionals who took part in the poll believe that rents may slip a bit more over the summer, though the 12-month outlook is more or less flat.

METHODOLOGY

HomeLet Rental Index - Provides data on new tenancies in the UK. As part of referencing prospective tenants each year, HomeLet processes information including the rental amounts agreed, the number of tenants moving into the property, together with the employment status, income and age of all tenants.

ONS Index of Private Housing Rental Prices - An experimental price index tracking the prices paid for renting property from private landlords in Great Britain.

RICS Residential Market Survey - A monthly sentiment survey of chartered surveyors who operate in the residential sales and lettings markets. This survey sample covers 324 responses coming from 626 branches.

Your Move Buy to Let Index - Based on analysis of approximately 20,000 Your Move properties across England and Wales.

Zoopla research - Zoopla analysed the current asking prices and rents of two-bedroom properties on the market in Britain’s 50 biggest cities (by number of properties), assuming a typical first-time buyer home. It assumed a 25-year mortgage with repayment and a fixed interest rate of 4.5%, based on a 90% LTV ratio for a simple comparison to renting without the need to assume renters’ monthly personal savings.

Published: 19 May 2017
Last updated: 19 May 2017

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