Renting in London now cheaper than monthly payments for a 90 per cent mortgage for first time in four years

·3 min read
 (Daniel Lynch)
(Daniel Lynch)

It is cheaper to rent in London than own a home for the first time in four years after tenants fled the capital at the height of the global pandemic.

Londoners in rental accommodation are £251 better off after paying their monthly rent than home owners forking out their mortgage repayments, a new study reveals today.

This is a complete reversal of the trend seen last spring before Covid-19 swept the country, according to the analysis by estate agent Hamptons.

Based on the monthly cost of buying relative to renting, with a 10 per cent deposit and a 90 per cent loan-to-value mortgage, owning a property was £123 cheaper than renting in March 2020, just ahead of the national lockdown and property market closure.

During the first lockdown, and in anticipation of more to come, young flat sharers returned to the family home while overseas students and international executives stayed away. This forced landlords to offer discounted rents to fill their empty pads.

The last time it was cheaper to rent rather than own was in June 2017 after the peak of the housing market in London and the Brexit vote when the rental market softened.

“Falling rents in the capital have made renting cheaper relative to buying by a bigger margin than anywhere else. And with rents still falling, the differential looks set to continue growing,” says Aneisha Beveridge, head of research at Hamptons.

Table: monthly cost of buying (with a 10% deposit) relative to renting

Region

Price difference in March 2020

Price difference in May 2021

London

-£123

£251

South East

-£75

£54

South West

-£29

£108

East

-£56

£117

East Midlands

-£31

£98

West Midlands

-£95

£35

Yorkshire & Humber

-£137

-£5

North West

-£123

-£4

Wales

-£122

£11

Scotland

-£204

-£130

Great Britain

-£102

£71

Negative figure means it’s cheaper to buy than rent, positive means it’s cheaper to rent than buy.

Source: Hamptons, June 2021

The squeeze on mortgage availability over the last 12 months has pushed the cost of owning up too.

Major lenders struggled to cope with the sudden high demand to buy when the property market reopened last May and withdrew high loan-to-value products that typically helped first-time buyers get on the ladder.

As lending relaxes Beveridge expects the cost gap between renting and owning to slowly start to narrow.

The biggest difference between the two is in central London, the data shows, where rents have fallen 20.3 per cent over the course of the pandemic. This is the result of the absence of wealthy overseas students but also the flooding of the rental market by Airbnb owners. With no tourism trade they flipped their city boltholes from short-term to long-term rental.

3-bed houses in Walthamstow: left, £725k, so £3,204 a month mortgage (with a 10% deposit), vs. £1,995 a month in rent, right (Churchills | The Stow Brothers)
3-bed houses in Walthamstow: left, £725k, so £3,204 a month mortgage (with a 10% deposit), vs. £1,995 a month in rent, right (Churchills | The Stow Brothers)

Although the cost gap between renting and buying is most stark in London, due to the high proportion of tenants and rental accommodation, the trend can be seen across seven out of the 11 regions that make up Great Britain. The only places where it is cheaper to own than rent are the North East, the North West and Yorkshire & Humber.

On average, across the country, it is currently £71 cheaper to rent than to own a home on a monthly basis.

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