The property comparison website Zoopla.co.uk announced its findings that in 90% of towns across Britain, it may be more economical to purchase a property rather than rent one.
The research took the example that if one takes a two bedroom flat, the average rent would be around £668 per calendar month. By comparison the average asking price of an equivalent property is £138,769. If one was on a 5% interest only mortgage, they would pay £578 per month. This is a saving of more than £1000 per year by the mortgage paying home-owner.
According to the findings of Zoopla.co.uk, York, Reading, Milton Keynes and Peterborough are among the least financially worthwhile towns to rent rather than buy a property. Meanwhile Swansea, Huddersfield, Bournemouth, Cambridge and Dundee are some of the most cost effective places to rent instead of buy.
This is in part because of the continued low interest rates established by the Bank of England to try and encourage lending and borrowing. However, a major barrier is the unwillingness expressed by lenders to offer mortgage deals to first time buyers or those looking for high LTV ratios. As such, these people are struggling to get on the housing market to enjoy the low interest rates and so in some cases, have little option but to rent and spend more money than they should on rent because they are unable to get on the property ladder.
However, what should be noted is that these findings are based upon the use of an interest only mortgage. Considering they are becoming less common with mainstream lenders and in order to qualify banks generally require an LTV of 75% or more from the borrower, the scenario described above is not a particularly common occurrence.
Many people new to the property market might be looking for an LTV around 85-90%, and will be on a repayment scheme with a higher rate of interest. As such for many borrowers it may not necessarily be cheaper to have a mortgage than rent, but the idea of being a home owner and the theoretical security of having a mortgage may be one of the things that drive many people’s desire to get out of renting.
