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0:01 AM, 25th June 2024, About 6 days ago 4
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While renting costs continue to rise, a new analysis reveals that buying a home with a 5% deposit is currently more expensive than rent for most tenants in the UK.
This is due to high mortgage rates, making the government’s Mortgage Guarantee Scheme fall short for many.
The report by Hamptons found that potential buyers with a small deposit would face an average £300 per month increase in mortgage repayments compared to renting the same property.
This significant difference makes buying financially unviable in most areas south of Birmingham.
Hamptons also reports that rent prices have shown signs of stabilising at around 6% year-on-year, with London experiencing the slowest pace of increase with 3.9%.
However, affordability challenges persist, particularly for tenants seeking smaller, more affordable homes.
The report concludes that both renters and aspiring homeowners are facing difficulties in the current market.
High interest rates are squeezing buyers with small deposits, while rising rents are putting pressure on renters’ finances.
Aneisha Beveridge, the head of research at Hamptons, said: “Despite rental growth setting at around 6% year-on-year, renting remains more cost-effective than buying for most households across the country.
“High mortgage rates have squeezed buyers with small deposits out of the market, forcing more households to rent for longer.
“The uplift in the monthly cost to buy a home with a small deposit has made purchases unviable in most places south of Birmingham.”
She adds: “Both the Labour and Conservative Parties have included mortgage guarantee schemes in their manifestos to boost the availability of 95% loan-to-value deals.
“However, their effectiveness will probably be determined by Threadneedle Street rather than Downing Street.”
The analysis from Hamptons highlights that mortgage rates would need to fall significantly to make buying with a 5% deposit attractive again.
For example, the average rate would need to drop from 6.1% to 4.2% nationally, and even lower in London – to 3.6%.
The report suggests that the Help to Buy scheme, which provided equity loans to first-time buyers, may be a more effective way to support homeownership compared to the current Mortgage Guarantee Scheme.
This is because Help to Buy equity loans helped reduce mortgage repayments in the initial years, making homeownership more affordable.
Ms Beveridge said: “The extent to which the Bank of England reduces rates will shape the numbers of would-be buyers with small deposits more than the best-designed government policy.
“This analysis also suggests that in a world of high interest rates, the take up of the Conservative’s 0% capital gains tax incentive for landlords to sell to their tenant is likely to be fairly low, too.
“Rather, a Help to Buy style scheme is better suited to help renters with small deposits become homeowners, particularly when compared to the mortgage guarantee scheme.”
She adds: “Persisting affordability pressures have driven competition for Britain’s more affordable rental homes.
“Smaller homes in traditionally cheaper parts of the country recorded the highest rental growth last month.
“With tenants squeezed from multiple angles, their ability to save for even a 5% deposit has been curtailed.”
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Cider Drinker
8:59 AM, 25th June 2024, About 6 days ago
We need a return to 100% mortgages, especially for tenants with a verifiable history of paying their rent.
It was always more expensive to buy a home of your own (on a repayment mortgage).
Hoping for a rate drop to aid affordability is pointless. Any significant drop is usually accompanied by a rise in house prices.
What government could do is ensure mortgage rates remain stable and legislate for minimum fixed term FTB mortgages of 7 years, with no artificial arrangement fees.
David
10:00 AM, 25th June 2024, About 5 days ago
Unaffordable for most, how is that? Flats are being knocked out at £200k in the affluent South East so if they cancelled their phone contracts, Netflix, flash car contracts etc etc and made a little sacrifice most can raise £10k.
Repayments on a standard mortgage would be no higher than paying rent.
I get the impression though that many if not most young people don't want the responsibility of their own own house.
In fact I am sick of hearing the bleating and whining from them while the government hand out endless help.
Cider Drinker
16:38 PM, 25th June 2024, About 5 days ago
Reply to the comment left by David at 25/06/2024 - 10:00
“ Repayments on a standard mortgage would be no higher than paying rent.”
Of course, paying rent gives the customer much more (and much less) than paying a repayment mortgage.
Much more.
Renting provides building insurance, maintenance, repairs. Renting removes the risk of house price falls and should reduce the customer!s exposure to interest rate movements. Renting also reduce capital costs on things such as SDLT and it provides much more flexibility should the customer wish to move house.
Much less. Rents are likely to rise by the rate of inflation whereas a mortgage is likely to remain relatively constant (other than changes to interest rates). Therefore the full benefits of buying are often not felt until some years after the purchase. As time passes, the real cost of staying in the property reduces die to inflation and eventually, the homeowner should be free of the mortgage burden.
Some people prefer to rent because their rent is paid by the State (in full or in part).
In summary, you cannot compare a mortgage repayment directly with the cost of renting.
David
18:05 PM, 25th June 2024, About 5 days ago
As you say difficult to compare the two. Rents in my area have hardly moved in a decade, tenants love a cheap deal but when you mention rent increases they plead poverty.
My impression is that some if not many younger tenants just like the fact they have no responsible for the property other than paying the rent and even if buying and maintaining a property was cheaper they would still prefer to rent.
With Labour moving in they won't even have to bother about rents based on inflation because rents are likely to be capped. and you will be stuck with the same tenants for years.