Frozen out of the mortgage market and forced to pay a punishing rent

Published 10th Jan 2012

The growing number of those who cannot raise enough of a deposit to get a mortgage are in a worse position than ever.

It now costs more to rent than to pay a mortgage on the same property in 47 of the 50 biggest towns and cities in Britain, according to research by property data firm zoopla.co.uk.

This trend is growing due to soaring rents and persistently low mortgage rates. Zoopla says that a year ago it was cheaper to have a mortgage than to rent in 40 of the biggest locations. The cost difference between paying a mortgage and paying the rent has grown by 50 per cent in the period.During much of the past decade, when house prices and mortgage rates were higher, and where it was easier to get a mortgage with a small deposit, it was often cheaper to rent.

Calculations by Financial Mail reveal that with a 15 per cent deposit, those who can get a mortgage will be about ten per cent a month better off than their renting counterparts. The difference is far bigger if a borrower has a 40 per cent deposit because they would be able to get an extremely low mortgage rate. Data from other sources, including lenders and letting agents, show that the increases in rents during 2010 and 2011 may be tailing off.

Growing numbers of young workers unable to secure mortgages have pushed rents up by about ten per cent since 2008, when the banking crisis struck.

In London, increases have been twice that. With more of their money going on accommodation, tenants are finding it difficult to save, making the prospect of home ownership ever slimmer.

Katy John, 31, is part of lobby group pricedout.org, which has sprung up in recent years to represent those frozen or ‘priced out’ of home ownership. The 31-year-old charity worker who rents in south-east London says: ‘It is now as hard as it’s ever been for people to save for that all-important deposit.’

Katy highlights the financial advantages for those who can find a deposit and buy, adding: ‘If they can possibly save, young people earn almost no interest on their money, while rents and the cost of living continue to rise. Compare this with those lucky enough to be home owners, who are benefiting from low mortgage rates.’

Higher rents and lower mortgage rates are attracting landlords back to the market, another factor Katy believes is keeping property prices high and freezing out first-time buyers.

Pricedout has lobbied for the Government to introduce higher taxation on landlords, among other measures. ‘We want the Government to introduce initiatives enabling prospective first-time buyers to get a decent return on their savings,’ says Katy.

‘Higher taxation on buy-to-let, which has experienced a comeback over the past year, threatening to displace more first-time buyers, would also help – as would building more homes.’

Source: ' ThisIsMoney '

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