Not even high mortgage rates make it worth renting London houses

OWNING property in London remains better value than renting, even after mortgage rates more than doubled, reflecting a surge in the costs tenants must pay to secure a home.

Data from the lender Halifax showed that the monthly cost to first-time buyers of owning a home in the capital was £2,241 (S$3,807) in 2023, the highest in the United Kingdom – but still £12 a month cheaper than renting an equivalent property.

The figures underscore the financial squeeze on many younger tenants in London as they face exorbitant rental costs while also struggling to build enough of a deposit to get a foot on the housing market. Private rents in London soared almost 11 per cent to more than £2,000 a month on average in the last year, as supply constraints collided with strong demand.

That has meant young homeowners still hold an advantage over their renting counterparts despite mortgage rates rocketing to 15-year highs last summer. A cooling in mortgage rates since is expected further tip the balance towards owners in the coming years, according to Halifax.

The arithmetic favouring buying does not account for the difficulty many people have in finding enough money for a deposit to secure a mortgage. Separate research from the Institute for Fiscal Studies has shown that more young people are relying on support from family to buy a home, and those without that resource are stuck renting.

“Elevated borrowing costs, alongside a lack of available homes to buy, is pushing ownership further out of reach for would-be first-time buyers in many parts of the country,” Kim Kinnaird, mortgages director at Halifax, said on Wednesday (Mar 27).

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While Halifax’s data showed that overall UK first time owners faced lower monthly costs than renters, the gap has closed and there were wide variations between the regions. Only in London, Scotland and the South West of England was owning cheaper than renting with the reverse true in the rest of the country.

UK-wide figures by Capital Economics suggested that renting was cheaper than buying a home for the first time in 14 years in 2023. However, it predicted that this would reverse again over the next five years as rents soar and mortgage costs cool.

“The story of the last two years has been a slowdown in transactions not prices, which has made renting a cheaper option in some areas, even though the lettings market has suffered from a lack of supply,” said Tom Bill, head of UK residential research at Knight Frank. BLOOMBERG