Owning A Home Is Cheaper Than Renting but Is Still Out of Reach for New Buyers
There are many misconceptions when it comes to the UK property market and the tale that renting a home is cheaper than owning it seems to be one of the major tales that fails to have the evidence to support the claims.
Historically, back in 2009, it was in fact cheaper to rent a home than it was to buy it with a clear 16% difference between the two monthly costs clear for many to see, however that has since changed and with lower mortgage rates and higher demand for rental homes, prices for renting a home began to climb, with figures in 2015 showing that it was on average 8% more expensive to rent than to own your home.
The property market seeing house prices climb meant that buyers were beginning to be priced out of the market as initial down payments for mortgages were increased due to the rise in property prices, while an increase in the number of buy to let landlords also saw much greater competition for cheaper housing that entered the market.
With less homes to buy, a higher average market price and higher demand for rental properties due to buyers simply being unable to afford the initial down payments on mortgages, rents slowly climbed to create the large gap between the two options.
While owning your home could well be an appeal prospect based on this, you do need to take a moment to think about to possibility that interest rates could be set to change, with many previously speculating that it could happen as early as the start of 2020, however recent developments in China have economists believing that it could take longer for the interest rates to climb.
With interest rates as low as 0.5% right now, a change in the Bank of England set interest rate by as little as 2% could mean that a home owner could see their mortgage repayments climb by £137 a month, or £1,644 a year.
So with the prospect of that increase potentially being able to bring the prospect of owning your home or renting a property closer to each other financially, we can’t completely rule out that the same increase could mean that rental costs could be increased in line with landlords mortgage payments too, so only time will tell.
With rental and property ownership continuing to battle for suitability, it appears that although there are schemes and help to buy ISA offering being rolled out, we could still be looking at a future that could see the rental market continue to flourish while buyers try to save enough to make their initial payment on a mortgage suitable for their requirements.