Cheaper to pay mortgage than rent
AS we've said before, the decision to buy or rent comes down to individual personal financial circumstances.
In the current climate buyers are struggling to secure mortgages, regardless of whether they are first-time buyers or not.
Lenders have tightened their criteria so much that in certain situations existing borrowers are struggling to move up the property ladder.
The latest research renting-versus-buying research from Zoopla.co.uk shows that for a two-bedroom flat, renting is almost £1,000 a year more expensive and that it's now cheaper to service a mortgage than rent in 86 per cent of cities in the UK.
In other words, tenants pay 14 per cent more on average in rent than owners pay in servicing mortgages.
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 home.
The average asking rent for two-bedroom flats is £669 per month, compared to an average asking price of £140,692.
Servicing an interest-only mortgage at five per cent would cost £7,035pa, 14 per cent less than the £8,028 paid by the average tenant for such a property.
Using a 90 per cent LTV interest-only mortgage at a typical best buy rate of 4.39 per cent 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 owner £2,463 a year (not including the cost of a deposit).
This is partly due to the difficulties faced by first-time buyers in getting a mortgage, which is pushing up the cost of renting.
Buying is now cheaper than renting across 86 per cent of the UK's cities, up from 84 per cent 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 10 places where it is cheaper to buy than rent.
Hull tops the list of the most expensive places to rent compared to buying. Tenants pay £2,855 a year more than owners – a rental premium of 62 per cent.
York and Peterborough complete the top three places where buying beats renting.
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. Owners in the Welsh seaside town pay £1,169 per year more than tenants.
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 two per cent more cost-effective than buying, with owners £682 a year better off than renters.
As a general rule it is much more cost-effective to own a property than rent it.