Buying is cheaper than renting in four fifths of UK towns and cities

Published 17th Nov 2010

Average tenant pays nearly 10% more to rent a two-bed flat than buyer of similar property – as long as mortgage rates stay low

Buying is more cost-effective than renting in 80% of British cities and towns, up from 74% in July, according to property search website Zoopla.co.uk.

Zoopla, which carries information about properties for rent as well as for sale, has found that the average tenant renting a two-bedroom flat pays 9.9% more than the owner of an average-priced similar property with an interest-only mortgage set at 5% – the rate now available to buyers with a 10% deposit.

The website says the price differential has also risen between renting and paying for a mortgage from 8.7% in July to 9.9% at the beginning of November. It attributes the change to falling house prices and rising rents, and says the severe shortage in the availability of mortgages has kept many potential buyers in the rental market, resulting in high tenant demand while the combination of stagnant house prices and low interest rates has reduced the monthly cost of home ownership.

York and Birmingham are the most expensive places to rent compared with buying, with a cost differential of 39% on the price of a mortgage. In York, average monthly rents of £978 leave renters £3,270 a year worse off compared with the cost of buying a two-bedroom property. Twelve more large cities and towns - Derby, Reading, Milton Keynes, Walsall, Hull, Dundee, Norwich, Bradford, Preston, Peterborough, Northampton and Coventry – also saw rents exceed mortgage payments by 20%.

Even in London, where asking prices for property are the highest in the UK, buying is still more cost-effective, with renting 14% more expensive than buying a two-bedroom flat.

It was cheaper to rent than to buy in only 13 of the 50 towns and cities included in the survey. Aberdeen proved the cheapest, costing 22% less to rent. Zoopla said: "This could be attributed to the strong salaries commanded by those who work in Aberdeen's thriving technology and energy sectors. More able to buy than most, they push house prices up compared to rents."

The next cheapest was Swansea, with an 11% differential, followed by Huddersfield (6%), Edinburgh and Plymouth (both 5%), Bristol (4%), Bournemouth and Stockport (both with a 3% differential), and Oldham and Newcastle (both with a 1% difference).

Nicholas Leeming, commercial director of Zoopla.co.uk, said: "For those who are able to buy a home, costs are low, but for those who can't, costs are much higher – and the doorway to entry into the housing market is narrower than ever. The freezing up of credit has put home ownership beyond the reach of many renters, and it's driving a larger and larger wedge between them and owner-occupiers."

However, he added that while buying wins out over renting today, the impact of a rise in interest rates should not be ignored. If interest rates were to increase by 1% and rents to remain the same, renting would become more cost-effective in 72% of the locations studied, he said.

Source: ' Guardian '

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