Is It Cheaper To Own Or Rent UK Property?

Renting a property in the UK Private Rented Sector (PRS) is fast following the European trend and becoming the normal thing for people to do instead of taking the plunge and getting a foot on the property ladder.

Struggling First Time Buyers have been forced to rent whilst saving for a deposit on a home. However, purchasing a Buy to let property as an investment is a much cheaper option than renting claims UK mortgage lender, the Halifax

Demand for investment property from Buy To Let landlords is currently experiencing strong growth and owning property in the UK is over a £100 a month cheaper than renting, according to the Halifax’s latest research.

The UK mortgage lender states that the average monthly cost of buying a 3 bed property in the UK was £600 in December 2011.

That is 16% or £116 lower than the average monthly rent of £716 paid on the same property type.

This represents a significant turnaround compared with 3 years ago when the average cost of buying was 29% higher than the average rent paid.

The monthly costs associated with buying a private sector residential property accounted for just 29% of the average UK disposable income in 2011, compared to 47% in 2008.

Residential property purchasing costs have dropped by over 25% (approx £328) since 2008, driven by a decline in the average monthly mortgage payment of almost 30% (£242) due to the marked fall in mortgage rates and UK property prices, say the Halifax.

The mortgage rate for a new borrower has been reduced to an average of 3.63% in 2011, down from 5.75% in 2008, while the average UK residential property price has dropped by 11% over the same period.

The Halifax also claims that the average cost of renting property in the UK has risen by 9% (approx £62 since 2009).

This is due to the very high demand for UK private rented sector (PRS) property, driven by potential buyers forced to rent, as they face an uphill struggle attempting to get a foot on the property ladder in the UK, and this demand has already pushed up PRS rents.

Savvy UK landlords have not been taking any chances though, with many opting to only take tenants who pass thorough tenant referencing criteria and who take out Rent Guarantee Insurance to protect the landlords rental income.

During 2011, property purchasing costs fell by 5% while the typical cost of renting has also risen by 5%, continuing the trends observed in 2010.

Buying a residential property as a home was more cost-effective than renting in 11 out of the 12 UK regions in December 2011.

In contrast, purchasing property was more costly than renting in all regions in December 2008, demonstrating the considerable turnaround over the last 3 years.

The number of property buyers entering the UK housing market has continued to decline despite the improvement in the affordability of buying compared with renting since 2008.

The Halifax estimates that there were around 510,000 property purchases with a mortgage in 2011, the lowest annual total since 1974 and 6% lower than in 2010.

The majority of the decline has been attributed to the size of the average deposit required more than doubling over the past decade.

In addition, the associated costs related to moving home such as stamp duty and estate agents fees have also increased over the past 10 years, adding to the overall cost of purchasing a property.

Martin Ellis, housing economist at Halifax, said: “The affordability gains for buyers relative to renters in the last three years have been significant. The average mortgage payment has fallen dramatically over recent years as a result of falling house prices and mortgage rates. At the same time, rents have risen due to strong demand for rented accommodation. Nonetheless, despite the improvement in the relative affordability of buying a home, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the UK economy, which have severely constrained housing demand.”