It could be cheaper to rent than get a mortgage now

It could be cheaper to rent than get a mortgage now

The property market in the UK has been going through a rollercoaster ride over the past few years, with prices and demand sky rocketing despite a global pandemic that shut the economies of Western countries for the best part of a year. In effect, the UK economy and in turn the property market have completely changed, and it now could be cheaper to rent than get a mortgage.

The prediction, at that point, was that the market would struggle and prices would drop along with demand during the pandemic but, of course, that never materialised and instead the market exploded.

This, however, could now be having some unintended consequences as new buyers and people looking to upsize their houses are now struggling to afford the deposit and mortgages they need to do so.

Is this a good thing or a bad thing? Well that will absolutely depend on which angle you’re coming from. If you’re a first time buyer, then absolutely not, however, if you’re a property investor or landlord, then it may just well be better for your investments.

Renting vs buying

Thanks to the Bank of England raising its base interest rate to 1.25% it is now quite possible that it could be cheaper for potential home buyers to rent rather than get a mortgage.

As reported by Your Money, ‘The gap between rental and mortgage costs has been squeezed as in May, it was £40 per month cheaper to service a mortgage with a 10% deposit than it was to rent the same home. In November last year, it would have been £160 cheaper.

However, analysis by Hamptons revealed that if the 0.25% increase to the base rate is passed onto mortgage costs, renting a home will be £1 cheaper than the monthly costs associated with buying.’

This is significant if we assume that the Bank of England will be required to keep raising interest rates in order to curb rising inflation, which is thought to be somewhere around 9% as it stands.

If you’re in the UK you will have noticed that strikes are currently beginning to bite, with rail strikes taking place in the past few weeks, whilst doctors, teachers and Royal Mail staff being balloted for potential strike action.

This demand for higher wages, and higher profits for companies during the pandemic, have led to high inflation, and that ultimately means that the levers that the Bank of England have in order to curb that are fairly limited to setting their own interest rates.

Is it cheaper to rent than get a mortgage?

These market conditions make it an extremely appealing time for property investors and landlords alike, as it’s highly likely that even more people may be coming to market as private renters.

With property price growth slowing, yields are also rising strongly as a result, and as a passive income it’s hard to think of a better income earning asset right now than UK property.

With the gap between supply and demand already stretched as thin as it’s conceivable to go, the pressure will be upwards on rents, and this means higher and more stable incomes for landlords at a time when cost of living, fuel and inflation are all high.

If you’re interested in investing in UK buy-to-let property, then why not get in touch with one of our sales specialists today?

Spread the word: