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Buying cheaper than renting in 74% of Britain
Malcolm.
Posts: 1,079 Forumite
Buying a home beats renting in 74% of locations around the UK – which is good news for first-time buyers, provided they can get the required deposit together and meet the lenders’ new tougher affordability criteria.
First-time buyers typically compete with landlords for the same properties and the other side of the coin is that for investors rents are higher in 74% of locations than the cost of buying, according to Zoopla, the property information group.
This means investors ought to be able to get a healthy return on a relatively cheap investment – particularly in the light of several surveys which say that tenant demand outstrips supply in many areas.
Average monthly mortgage repayments are 8% lower than the cost of renting in nearly three quarters of locations, assuming an interest-only mortgage at 5%. Given that interest-only mortgages, particularly for first-time buyers, are on the regulator’s hit list – but are still available for buy-to-let investors – this is good news for landlords.
Top buy-to-let areas
So where are the areas where it is more expensive to rent than to buy? According to Zoopla, which looked at asking prices and rental values of two bedroom flats, even in London, which has the highest rents in the country, buying is still the more cost-effective option. Average rents on two-bed flats are currently at £2,155 a month while average asking prices are an eye-watering £446,345. But mortgage repayments at 5% are lower at £1,859 a month.
For lower priced properties, investors should take a trip to Dundee which comes in top of the list of places where buying is currently the best option with average asking prices for two-bed flats at only £88,263 while average rents are £530 per month. The cost of financing a 100% mortgage (though you can’t get one) on an £88,263 flat at 5% works out at only £367 – some £163 a month less than the average rent earned.
Other locations around Britain where buying is by far the better choice at current asking prices include Birmingham, Derby, Cambridge, Milton Keynes, Nottingham, York, Peterborough and Norwich. Many of these are also university towns with a regular supply of student tenants – although some also have an oversupply of new build flats on which it is difficult to get a mortgage.
Low rent areas
‘Conventional wisdom, that buying is better than renting in the property market, holds true for most places around the country,’ explains Nicholas Leeming, commercial director of Zoopla. ‘However, there are places where renting is the better option which may be driven by an excess of buy-to-let flats or a shortage of properties for sale.’
Landlords should avoid buying in areas where renting is a better option than buying. Topping this list (which students should study before deciding on which university to attend) is Huddersfield, where the average two-bed flat costs only £493 per month to rent but £146,898 to buy. Renting is also cheaper than buying in a number of other places including Oldham, Brighton, Swansea, Bournemouth, Bristol, Cardiff, Plymouth, Stockport and Edinburgh – most of them university towns.
But a word of warning for would-be investors. It might be wise to opt for a fixed rate loan. If interest rates were to increase by 1% and rents to remain the same, the tables would be turned and renting would become more cost-effective in 80% of the locations studied.
Negative factors
It would also be foolish to ignore the negative factors which have yet to show up in the statistics. Rising unemployment will take its toll of landlords who will suffer arrears and there is bound to be downward pressure from the Budget cap on housing benefit.
Housing benefit claimants are a significant force in the rental market. There are 4.72 million claimants and one million of those receive local housing allowance, the benefit for tenants in the private rental sector. In his Budget, the chancellor imposed caps on housing benefit of £400 a week for a four-bedroom property and £250 a week for a two- bedroom home.
Shelter, the housing charity warned that some households in London currently receiving housing benefit will have to find a shortfall of up to £1,548 a month to meet their housing costs. Clearly if they are on job-seekers allowance or some other benefit this will probably be impossible and they will have to trade down to a cheaper or smaller property. But do they really need to live in London if they are not working?
Top end rentals
Cuts in local housing allowance are unlikely to affect the top end of the market where Sarah Daly of Property Vision Rental Search operates. She reports that demand for country properties, in particular, is high. ‘Having been in the business nearly 20 years, I don't ever recall a market like this. In the country particularly we are experiencing such a severe lack of rental stock that all good properties are receiving two or more bids to let and competition to secure the right house is fierce.’ She says that competing tenants are now being asked to submit ‘best and final’ bids because letting agents have underestimated demand. ‘It's definitely a landlord's market,’ she says.
Record demand
This view is endorsed by letting agent Countrywide which reports tenant demand at a record high, with up to nine tenants competing for properties. Countrywide operates at the opposite end of the market to Property Vision but its 211 branches had 50,480 new tenants register in the second quarter of this year – a 16% rise on the first quarter. The sharpest increase was in June, with over 18,000 new tenants registering, the highest number in a single month since records began in 2003, and 22% more than the previous month.
Four-bedroom properties have seen the largest increase, with the average rent pushed up to £1,090 per calendar month. There is now an average of 5.5 tenants competing for each property compared with 4.9 tenants in the first three months of the year. The highest demand is for two-bedroom houses in the South-West where 8.9 tenants compete for each property and the most sought after properties are being let within two weeks – three days less that in the first three months of this year and six days less than in the fourth quarter of 2009.
‘The number of tenants entering the market is at unprecedented levels – and we have yet to enter the peak season,’ said John Hards, managing director of Countrywide Residential Lettings. ‘Student demand for private rental accommodation will increase further with university applications at record levels.’
This is endorsed by the latest figures from Paragon Mortgages which show that 29% of landlords recorded growing levels of tenant demand during the period, compared with 10% who said it was falling. ‘Tenant demand has been rising consistently for two years and shows no signs of slowing down,’ according to Nigel Terrington, chief executive of Paragon Group the UK’s largest buy-to-let lender.
Shortage of finance
But he points out that a lack of buy-to-let mortgages is part of the problem. ‘Pressure is building on the finite number of properties in the sector because the lack of buy-to-let mortgage availability has prevented landlords from growing their property portfolios,’ he warned. As with residential mortgages, buy-to-let lenders are demanding landlords have a higher equity stake in their properties before considering a loan.
And this is likely to be a big constraint on landlords wanting to extend their portfolios. Paragon’s quarterly survey showed that four out of 10 landlords said that they attempted to arrange buy-to-let finance for purchase or remortgage purposes during the second quarter, with 52% of those saying that it was more difficult with 45% calling for the expansion of available mortgage finance.
Rising interest rates
Although rents are rising it isn’t all good news. For some it simply provides welcome respite. According to a poll of UK landlords carried out by flat and house share website Spareroom.co.uk, four out of 10 landlords complained that rents from their tenants barely cover the monthly mortgage repayments on their properties.
Some 43% admitted that if mortgage rates rise by 2%, then the rents would no longer cover their mortgages and a 1% increase would mean that 22% of landlords would see a shortfall. This has resulted in 63% of landlord increasing their rents since January of this year with 21% planning to increase rents by 5% this year, and 18% factoring in an increase of between 3% and 5%.
Sources:
http://citywire.co.uk/money/house-prices-the-areas-where-it-is-cheaper-to-buy-than-rent/a416057/2?ref=citywire-money-latest-news-list
http://blog.zoopla.co.uk/2010/07/21/zoopla-rent-v-buy-index-buying-cheaper-than-renting-in-74-of-britain/
First-time buyers typically compete with landlords for the same properties and the other side of the coin is that for investors rents are higher in 74% of locations than the cost of buying, according to Zoopla, the property information group.
This means investors ought to be able to get a healthy return on a relatively cheap investment – particularly in the light of several surveys which say that tenant demand outstrips supply in many areas.
Average monthly mortgage repayments are 8% lower than the cost of renting in nearly three quarters of locations, assuming an interest-only mortgage at 5%. Given that interest-only mortgages, particularly for first-time buyers, are on the regulator’s hit list – but are still available for buy-to-let investors – this is good news for landlords.
Top buy-to-let areas
So where are the areas where it is more expensive to rent than to buy? According to Zoopla, which looked at asking prices and rental values of two bedroom flats, even in London, which has the highest rents in the country, buying is still the more cost-effective option. Average rents on two-bed flats are currently at £2,155 a month while average asking prices are an eye-watering £446,345. But mortgage repayments at 5% are lower at £1,859 a month.
For lower priced properties, investors should take a trip to Dundee which comes in top of the list of places where buying is currently the best option with average asking prices for two-bed flats at only £88,263 while average rents are £530 per month. The cost of financing a 100% mortgage (though you can’t get one) on an £88,263 flat at 5% works out at only £367 – some £163 a month less than the average rent earned.
Other locations around Britain where buying is by far the better choice at current asking prices include Birmingham, Derby, Cambridge, Milton Keynes, Nottingham, York, Peterborough and Norwich. Many of these are also university towns with a regular supply of student tenants – although some also have an oversupply of new build flats on which it is difficult to get a mortgage.
Low rent areas
‘Conventional wisdom, that buying is better than renting in the property market, holds true for most places around the country,’ explains Nicholas Leeming, commercial director of Zoopla. ‘However, there are places where renting is the better option which may be driven by an excess of buy-to-let flats or a shortage of properties for sale.’
Landlords should avoid buying in areas where renting is a better option than buying. Topping this list (which students should study before deciding on which university to attend) is Huddersfield, where the average two-bed flat costs only £493 per month to rent but £146,898 to buy. Renting is also cheaper than buying in a number of other places including Oldham, Brighton, Swansea, Bournemouth, Bristol, Cardiff, Plymouth, Stockport and Edinburgh – most of them university towns.
But a word of warning for would-be investors. It might be wise to opt for a fixed rate loan. If interest rates were to increase by 1% and rents to remain the same, the tables would be turned and renting would become more cost-effective in 80% of the locations studied.
Negative factors
It would also be foolish to ignore the negative factors which have yet to show up in the statistics. Rising unemployment will take its toll of landlords who will suffer arrears and there is bound to be downward pressure from the Budget cap on housing benefit.
Housing benefit claimants are a significant force in the rental market. There are 4.72 million claimants and one million of those receive local housing allowance, the benefit for tenants in the private rental sector. In his Budget, the chancellor imposed caps on housing benefit of £400 a week for a four-bedroom property and £250 a week for a two- bedroom home.
Shelter, the housing charity warned that some households in London currently receiving housing benefit will have to find a shortfall of up to £1,548 a month to meet their housing costs. Clearly if they are on job-seekers allowance or some other benefit this will probably be impossible and they will have to trade down to a cheaper or smaller property. But do they really need to live in London if they are not working?
Top end rentals
Cuts in local housing allowance are unlikely to affect the top end of the market where Sarah Daly of Property Vision Rental Search operates. She reports that demand for country properties, in particular, is high. ‘Having been in the business nearly 20 years, I don't ever recall a market like this. In the country particularly we are experiencing such a severe lack of rental stock that all good properties are receiving two or more bids to let and competition to secure the right house is fierce.’ She says that competing tenants are now being asked to submit ‘best and final’ bids because letting agents have underestimated demand. ‘It's definitely a landlord's market,’ she says.
Record demand
This view is endorsed by letting agent Countrywide which reports tenant demand at a record high, with up to nine tenants competing for properties. Countrywide operates at the opposite end of the market to Property Vision but its 211 branches had 50,480 new tenants register in the second quarter of this year – a 16% rise on the first quarter. The sharpest increase was in June, with over 18,000 new tenants registering, the highest number in a single month since records began in 2003, and 22% more than the previous month.
Four-bedroom properties have seen the largest increase, with the average rent pushed up to £1,090 per calendar month. There is now an average of 5.5 tenants competing for each property compared with 4.9 tenants in the first three months of the year. The highest demand is for two-bedroom houses in the South-West where 8.9 tenants compete for each property and the most sought after properties are being let within two weeks – three days less that in the first three months of this year and six days less than in the fourth quarter of 2009.
‘The number of tenants entering the market is at unprecedented levels – and we have yet to enter the peak season,’ said John Hards, managing director of Countrywide Residential Lettings. ‘Student demand for private rental accommodation will increase further with university applications at record levels.’
This is endorsed by the latest figures from Paragon Mortgages which show that 29% of landlords recorded growing levels of tenant demand during the period, compared with 10% who said it was falling. ‘Tenant demand has been rising consistently for two years and shows no signs of slowing down,’ according to Nigel Terrington, chief executive of Paragon Group the UK’s largest buy-to-let lender.
Shortage of finance
But he points out that a lack of buy-to-let mortgages is part of the problem. ‘Pressure is building on the finite number of properties in the sector because the lack of buy-to-let mortgage availability has prevented landlords from growing their property portfolios,’ he warned. As with residential mortgages, buy-to-let lenders are demanding landlords have a higher equity stake in their properties before considering a loan.
And this is likely to be a big constraint on landlords wanting to extend their portfolios. Paragon’s quarterly survey showed that four out of 10 landlords said that they attempted to arrange buy-to-let finance for purchase or remortgage purposes during the second quarter, with 52% of those saying that it was more difficult with 45% calling for the expansion of available mortgage finance.
Rising interest rates
Although rents are rising it isn’t all good news. For some it simply provides welcome respite. According to a poll of UK landlords carried out by flat and house share website Spareroom.co.uk, four out of 10 landlords complained that rents from their tenants barely cover the monthly mortgage repayments on their properties.
Some 43% admitted that if mortgage rates rise by 2%, then the rents would no longer cover their mortgages and a 1% increase would mean that 22% of landlords would see a shortfall. This has resulted in 63% of landlord increasing their rents since January of this year with 21% planning to increase rents by 5% this year, and 18% factoring in an increase of between 3% and 5%.
Sources:
http://citywire.co.uk/money/house-prices-the-areas-where-it-is-cheaper-to-buy-than-rent/a416057/2?ref=citywire-money-latest-news-list
http://blog.zoopla.co.uk/2010/07/21/zoopla-rent-v-buy-index-buying-cheaper-than-renting-in-74-of-britain/
0
Comments
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Blimey Malcolm, I can't read all that gubbins. This caught my eye about half way down.. "Landlords should avoid buying in areas where renting is a better option than buying. ".. which is a fantastic bit of information. Similar I suppose to "best not to throw your money into a storm drain" or "wear a shirt when its raining".
Honestly mate I don't know if its a load of old rubbish or not, more than a couple of paragraphs and my mind starts wandering.0 -
Blimey Malcolm, I can't read all that gubbins. This caught my eye about half way down.. "Landlords should avoid buying in areas where renting is a better option than buying. ".. which is a fantastic bit of information. Similar I suppose to "best not to throw your money into a storm drain" or "wear a shirt when its raining".
Honestly mate I don't know if its a load of old rubbish or not, more than a couple of paragraphs and my mind starts wandering.
Hmmm. Have you been back on the old juice again Exocet?
If it helps(?), Hamish has a dumbies version on another thread. It has pictures and everything.
He probably has a better feel for his audience...well of Nollag and Rinoa anyway.
0 -
Blimey Malcolm, I can't read all that gubbins. This caught my eye about half way down.. "Landlords should avoid buying in areas where renting is a better option than buying. ".. which is a fantastic bit of information. Similar I suppose to "best not to throw your money into a storm drain" or "wear a shirt when its raining".
Honestly mate I don't know if its a load of old rubbish or not, more than a couple of paragraphs and my mind starts wandering.
You only need to read this bit, to thank malcolm for the postIt would also be foolish to ignore the negative factors which have yet to show up in the statistics0 -
Graham_Devon wrote: »You only need to read this bit, to thank malcolm for the post
Thanks Graham. On occassion I do try to be balanced. I probably fail. But I do try.
There's plenty for bull or bear to get their teeth into - if they haven't been drinking like Exocet.
It must be MSE swingers night again. Still no invite received <sigh>. 0 -
-
nollag2006 wrote: »It's on in No1 Main Street, RoundMyWay tonight from 7.
This is what I'll be wearing...
Very fetching. Excellent. I've always wondered where round my way is, seems to have it's own micro economic climate. I now know the residents look peculiar to, reminds me of a russian shotputter I once dated.0 -
Hamish has a dumbies version on another thread. It has pictures and everything.
And yet it's still too complicated for bears to understand.
Ah well.....“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »And yet it's still too complicated for bears to understand.
Ah well.....
How do you know what the bears are thinking. Are you the bear whisperer?
If so, nevermind Aberdeen, I hear your services are required in California. http://www.tvsquad.com/2010/04/16/animal-planet-orders-bear-whisperer/0 -
I've been a landlord for over 20 years and have bought and sold many houses with different ideas in mind about how to make some money on them.
When I first started out, my only criterion as to whether to rent out was - "is the rent higher than the mortgage".
I never once considered interest rates, this mortgage or that mortgage, is the yield right or whatever.
Things were a lot simpler then and just seemed a lot more stable.
Those that wanted to buy, bought and thise that wanted to rent, rented.
Now, it's just all f*cked up"The problem with quotes on the internet is that you never know whether they are genuine or not" -
Albert Einstein0 -
HAMISH_MCTAVISH wrote: »And yet it's still too complicated for bears to understand.
Ah well.....
This kind of attitude just shows insecurity. If you are so coonfident, just make your point and move on.
Now to the initial post:
It is interesting because this is the kind of comparison I have said people should always be making as the starting point when considering the financial side of the buy vs rent decision.
However this doesn't feel like a particularly good article.
The use of a 5% rate. Yes a FTB with 10% deposit could get that on a tracker, but does anyone really think a tracker is a good idea for a ftb? Once on to a fix, they are going to cost more. Any sort of 5 yr fix is going to be around 6%, so that straight away adds that 1% they mention.
But then it is equally not applicable to someone with a 50% equity stake.
This ONLY looks at 2 bed flats. Are flats not the piece of the market that have taken the greatest hit in prices? So bit of a bias from the start.
I question the accuracy of the data. First one I picked, Southampton. Did a Rightmove within 5 miles of southampton. 2 bed flats to rent. 40 pages. By page 7 I was under their quoted rent figure.
Cpompared to same area, 87 pages for sale, page 35 of 87 before I get to the point they mention as the average asking price.
I completely agree this is the short of thing people should consider, but to hold this up as an advert for buying is a little silly imo.0
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