Buying v renting: expert comments

In my experience with one client, renting is cheaper for monthly payments. My client currently pays £1,000 rent and finally found a property after the mini-Budget and the sudden rate increases. They had been searching for a property for one year. The potential payments would have been £1,450 per month, and this on the longest term possible. That's over £400 more than the rent they are paying. Had they found a property when we had ultra-low rates, the payments would have been less than £1,000 per month. They have put a hold on buying a property and will wait and see what happens in the new year.

Historical low interest rates, and government intervention in the form of help to buy and stamp duty exemptions had buying as the cheaper option to renting, on a monthly basis for over a decade. 6 weeks of government madness put a swift end to that. Rapidly increased interest rates, without a correction of note in property values, has meant that typically it will now be cheaper to rent than buy. This may dissuade new buyers from entering the market with other cost of living pressures a consideration. However, it is expected landlords will be forced to place pressure on that comparison as their low fix rates come to an end and they are forced to increase rents to remain in profit, and in viable positions with their investments. This is especially the case considering the possibility of net losses post tax liability considering the changes to rental income taxation.

There are two best times to buy a property, twenty years ago or today. It's all well and good building speadsheets and predicting the market but you buy a property for security of tenure or investment. In both scenarios these tend to be a longer-term strategy and if you look over history UK property values have always risen. Renting may be lower costs on an annual basis at present but what is the longer term reward? You are not investing in an asset or repaying a loan that was used to buy one.

To rent or to buy is the perennial question of first-time buyers and whereas, until recently, from a monthly cost perspective buying was almost always a clear winner, right now the buy versus rent waters are a considerably muddier. At the lower end of the market in most instances, the monthly cost of buying will typically still be less than renting. For example, a one-bedroom flat in Glasgow available for £100k would likely command a rental of approximately £675 a month. Based on just a 5% deposit, the monthly mortgage payment even with current rates in the region 6%, would be circa £100-150 less over a 35 year term. However, once purchase prices start to creep over the £150k mark and beyond then the balance of payments starts to shift towards the rental option, which, even allowing for likely rental payments rising proportionately to higher values, will typically mean that mortgage payments will be circa £150-£250 more expensive than renting. Of course with a larger deposit the monthly mortgage payments will also fall and there are many other factors and benefits of owning your own home but undoubtedly on a purely cost basis, there are some serious discussions and comparisons for would-be homeowners to be making. The current situation in Scotland is also further complicated by the Scottish Government's attitude to private landlords and current freeze on monthly rents. These actions will undoubtedly result in a further squeeze on supply to the rental market - as landlords leave the sector - and monthly rentals will likely rise substantially as a result. Furthermore, when existing tenancies end and the rental freeze is no longer applicable, landlords understandably will use the opportunity to raise rents and obtain fair market value when they are legally able to.vThis specific scenario may mean that - in Scotland at least - the opportunity to buy may still represent the best option for many.

In my opinion this is an easy answer as being a broker I see the difference between the cost of monthly mortgage payments and rental payments every day. Monthly mortgage payments are almost always going to be cheaper than what you would pay for a property of similar value that you are renting. For example, a first-time buyer looking to take out a mortgage of £150,000 over 35 years (using only £10,000 deposit) to purchase a property of £160,000 would have mortgage payments of £880 which could be reduced further by increasing the term. This is very reasonable in comparison to renting where you would be paying likely more than that for a comparable property but rather than that money being invested into a property that at the end of the mortgage term you will own outright it's being put in your landlord's pocket. Regarding the very common question I get at the moment of ‘As mortgage rates are going up is it cheaper to rent than get a mortgage’, my answer to this is a hard ‘NO’, and I think it always will be regardless of how hight mortgage rates go up. This is because the majority of landlords have mortgages on the properties they are letting out, and although their mortgage payments are slightly lower as they often pay them on an interest-only basis, due to the lender's debt service coverage ratio they will still have to increase the rent they charge when the mortgage rates increase to ensure the rental income the property receives is enough to cover the mortgage at the lender's required DSC.