(qlmbusinessnews.com Mon, 21st Aug, 2023) London, UK —
The surge in mortgage interest rates has now led to renting a residence being more economical than purchasing one, marking the first time this has occurred since 2010, as stated by Zoopla.
According to the property website, the average monthly rent in the UK stands at £1,163, whereas the average monthly mortgage repayments for first-time buyers, with a 15% deposit, total £1,285.
Zoopla highlighted that regions such as London and the South East have experienced the greatest impact, witnessing higher mortgage expenses compared to rent. However, areas like northern England and Scotland still offer a more economical option for buying.
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The average rate for a two-year fixed mortgage presently rests at 6.76%, as disclosed by Moneyfacts, the financial information service. This rate increases slightly to 6.24% for a five-year fixed deal.
Notably, both two-year and five-year fixed mortgage rates had dropped below 3% in the early months of 2021.
Richard Donnell, Head of Insights at Zoopla, conveyed to the media that for the past decade, purchasing property had been financially more feasible than renting, primarily due to the availability of “ultra cheap mortgage rates”. However, this trend has now been reversed, even as rental costs continue to escalate.
He further elucidated, “The scenario varies across the country, where in regions with lower housing prices, buying remains more affordable than renting. Conversely, in southern England, where property prices are steep, access to homeownership is increasingly out of reach, and rental costs are also elevated.”
On average, monthly rental expenses are £122 less than monthly mortgage repayments.
Zoopla's calculation is grounded on an average UK home value of £263,000, where a first-time buyer contributes a 15% deposit, amounting to £39,500. The ensuing calculation contrasts the average monthly mortgage payment against the average monthly rental cost.
The discrepancy is most prominent in London, where the average house price is approximately £522,000. Zoopla indicates that monthly rent is £493 lower than the monthly mortgage payment.
In contrast, in Scotland, where an average home costs £127,000, the average mortgage payment surpasses the average rent by £128.
With the Bank of England elevating benchmark interest rates to counter high inflation, which gauges the pace at which prices escalate, mortgage rates have witnessed an increase. Since December 2021, the Bank has implemented 14 rate hikes, most recently raising it from 5% to 5.25%, marking the highest point in 15 years.
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The future actions of the Bank remain uncertain, although financial markets suggest that rates might be approaching their zenith.
Mr. Donnell anticipates a decline in mortgage rates and foresees the continued rise in rental prices eventually leading to a point where purchasing becomes more cost-effective than renting as 2023 unfolds.
However, he emphasised that the issue of housing unaffordability would persist for first-time buyers and renters, especially in southern England.
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