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Renting Is Now Cheaper Than Buying a Home

Whilst the question of whether it is better to rent or buy a property right now is certainly nothing new, recent figures quickly dispel any notions that suggest renting is a waste of money.  Whilst the market will be subject to the taste of renters and buyers alike, the last 18 or so months have proved to be somewhat of a grey area when posing the question to the nation’s capital; but, is it better to rent or buy in London?

Is It Better to Rent or Buy in London?

Figures have revealed that once again, properties across the nation’s capital have seen a more sluggish reaction to the surge in house prices, with the region experiencing the slowest growth in the UK for the sixth consecutive month. With this being said, the report provided by Hamptons has shown prices within London to have been anything but stagnant over the course of the Coronavirus pandemic.  In March 2020 if a prospective home owner were to place a 10% deposit down onto a property within London they would have been able to enjoy a saving of roughly £123 when compared to renting a similarly sized property at the time. However, a year later and the rental landscape within the capital has seen a radical shift, with those choosing to rent making a saving of £251 when compared to those making regular mortgage repayments.


buy or rent


But this is not top say the region has been a buy to let paradise for renters and landlords throughout this period. Whilst the influence the pandemic has had on the income of so many is well documented, with its impact casting an unprecedented amount of tenants into rent arrears and campaign groups warning of an imminent surge in homelessness. In September of 2020 Hamptons also reported that thanks to a mass exodus of tenants looking to leave their city centre accommodation, in search of larger properties, more space and outdoor areas, causing rents within London to plummet as much as 20%. Stating that the amount of renters looking to find their next home within city centre locations across the nation had fallen by 23% during the initial lockdown period, the changing dynamic of the rental industry caused many landlords to dramatically reduce their rental charges in order to stay competitive and give their property the edge when attracting new tenants. Whilst this idyllist outcome for tenants may hinge on the remote working phenomenon being here to stay, it is undeniable the change in sentiment renters across the UK have displayed.

It has also been argued that these city centre locations have seen a surge in competing rentals within their area. With the global tourism industry scrambling for a footing, the demand for short term lets typically hosted across air b n b has plummeted, leaving these property owners to adapt, taking on longer term tenancies to stave off extended void periods.

You could also be forgiven for thinking that the influence of this mass relocation away from typically prime city locations would not have a profound effect on rental property owners that provide accommodation to full time students. After all, students would be unable to stray too far from the campus and despite the frequent need for tenants in this demographic to obtain a guarantor, have been historically hailed by landlords as a somewhat dependable demographic as the academic year is predictable.

The incentive to rent over purchasing a property is made all the more clear in the circumstance that the prospective home owner is only able to put down a 5% deposit. Whilst this could somewhat be attributed to the surge in interest rates seen across loan to value mortgages throughout the COVID-19 outbreak, renters in this situation would be £195 better off than if they were to be making regular monthly mortgage repayments.  

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How Has COVID Affected Rent Prices?

With this being said, the long term influence of the drive out of the capital has only worked to increase rental prices for properties elsewhere across the UK.  Whilst the telegraph reported in April that the withdrawal had caused the rent prices in London to fall to such a degree, with claims being made rental growth has been set back by at least five years.  However, outside of the capital the average costs of a rental property in April 2021 settled at £928 each month, almost a 5% rise on the first three months of the year, and the highest peak seen across the industry since 2015. Recent months have seen the amount of rental properties across the UK, with the exception of London, fall by 54% as a result of the exceptional demand seen throughout the pandemic.


COVID Affected Rent Prices


The recent study provided by Hamptons further revealed that the average price of a newly let rental home within the UK had seen an increase of just over 7% when compared to the same month in 2020, the most aggressive rise seen since December of 2014. However, London continued to be the exception to the rule, with landlords slashing their rental charges in an effort to retain their tenants. In spite of this record increase the costs of renting relative to the fee that comes with buying a property is at its lowest level since 2013. Whilst these rates are expected to settle more favourably towards those inclined to purchase a property outright,  especially as mortgage providers race to offer clients the lowest possible rate, the dramatic increase being witnessed in property prices will offset this somewhat.

Why Should You Rent Instead of Buying?

The question of whether it is better to rent or buy right now is far from new and whilst the answer will of course be dependent on your individual circumstance and what you are hoping to gain from your next home, there are undeniable benefits to renting in the current financial climate. 

Whilst many of those that have managed to get a footing on the property ladder may tote the many mortgage repayments as somewhat irrelevant as they will comprise contributions that lead to eventually owning the property, this ownership doesn’t make them exempt from the financial liabilities that come with such a responsibility.

Perhaps most significantly of all, whilst tenants do have a responsibility to notify their landlord of any repairs or general maintenance that needs to be performed, they ultimately are not exposed to the costs of having such work conducted.  It goes without saying that the many costs that come with renovating a property can quickly burn a hole in a landlord’s pocket, with home owners naturally bearing the full costs of maintenance, improvement and furnishing a property themselves. 

It is often stated that high upfront costs that come with renting could deter tenants, with their obligation to pay numerous deposits and potentially rent in advance if the property owner requests this as a condition of the tenancy. However, these sums pale in comparison to the figures demanded from first time buyers who must put forward thousands of pounds to even be considered by mortgage providers. This also dismissed that in most cases both the holding deposit and tenancy deposit are returned to the tenants through a reduction in initial rental payments and bank transfer respectively. Additionally, the Tenant Fees Act 2019 prevented landlords from charging prospective tenants exorbitant and unnecessary fees when looking for new occupants for their rental properties. To this end the Fees Act placed a limit on the amount a landlord is able to request from a tenant for the tenancy deposit. If the amount that the residents of the rental property each year in rent is bellow £50,000 they are only required to pay the equivalent of five weeks rent. However, if the annual rental charge for the property is over this amount then the landlord is able to request a maximum of six weeks rent for the tenancy deposit.

With this in mind not only is there an unrelenting pressure on first time buyers to accumulate as much of a deposit as possible, but prospective home owners will then have to incur costs relating to a comprehensive property survey, alongside stamp duty and lofty legal costs. Not only that but to purchase a property is of course, one of the most significant commitment a person can make in their life and must not be taken lightly. Once this has been taken on the home owner must be prepared to be exposed to potentially fluctuating interest rates, making their mortgage repayment somewhat unpredictable, and potentially far greater than when the commitment was made. Figures provided by Hamptons international also reveal that prospective buyers of a property will need at least ten years in which to save the appropriate amount to provide a 15% deposit on their first property. Not only that but, the research goes onto say that a first time buyer looking to purchase a property in London will need an eye watering fifteen years and nine months to accumulate an appropriate amount for a deposit. With this being said it is of course possible for first time buyers to obtain a mortgage on as little as five per cent, but with an increasing amount of mortgage providers demanding a minimum of a ten per cent deposit, this will do little to help those new to the property ladder to avoid an increase interest rate on the mortgage they secure.

Naturally, home owners are increasingly subject to the contemporary taste of the market. Whilst renters are far from immune to the effects of supply and demand, with this being by far one of the largest dictators of rental charges, this will become a significant factor when making steps to sell a property. If the market is not favourable and property prices take a tumble, it is not unrealistic to say that the property owners could be making a loss rather than the profit they were undoubtedly hoping for. This danger of the secured mortgage being worth more than the property itself can land property owners in a precarious financial situation to say the least.  Even in the circumstance where property prices remain buoyant, the market is certainly know to be slow at times, leaving home buys landlocked in a location they no longer desire until demand for such a property regains its lost momentum.

Of course it is no secret that a property can be on the market for months, perhaps even years at a time, but renters are not burdened by this in the slightest. Not only are renters able to pack up shop and relocate within far shorter time frames, with six month tenancies and perhaps even enacting a break clause contributing to the unrestricted freedom that renters can experience. Those that choose to rent may also find more desirable areas far more accessible. It goes without saying that a highly contested are will see increased rental charges but this monthly charge will once again be dismal when compared to the financial undertaking purchasing a property in the same area would be.

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