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Why renting a home is now cheaper than buying

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In May 2021, the average price of UK property hit a high of £242,832, according to data published by Nationwide Building Society.

The Office of National Statistics’ UK House Price Index notes that this is following an annual (to March 2021) increase of 10.2% which is the steepest UK annual growth rate since August 2007.

This increase seen in the purchase market is likely to be central to recent analysis published by Hamptons revealing that in May, for the first time since 2014, homes were cheaper to rent than buy.

This is based on averages and, of course, will depend on specific circumstances, with property prices in both the purchase and rented markets varying significantly based on location, property type and size.

See how affordable a range of rented properties are in locations across England with Paragon’s Rental Affordability Index.

Rental Affordability Index

Successive lockdowns have been cited as drivers for this growth because being confined to our homes has led some to spend less, the shrewd choosing to pay more off their mortgages, while reconsidering what is important in a home. 

What has been dubbed the ‘race for space’ has seen larger properties with home office space, gardens and proximity to countryside gain in popularity.

This has been boosted by the Stamp Duty break which has benefitted home movers more than first-time buyers (FTB). This latter group already benefitted from a £300,000 exemption, which was introduced by the Government in 2017.

The result is the reversal of a trend spanning more than a decade where first-time buyers have been more active in the purchase market compared to existing owner occupiers. 

UK Finance data highlighted how many homeowners, especially those in the southern and eastern parts of England, hold significant amounts of property wealth following a decade of growing house prices.

This means that, compared to first time buyers, they have been relatively immune to the lack of availability of high loan-to-value (LTV) mortgages seen over the past year as coronavirus-fuelled economic uncertainty led to lenders reducing their risk exposure. An additional benefit enjoyed by those with healthy equity is, compared to those who are more highly leveraged, they have a reduced likelihood of being negatively impacted by rules that control how much people can borrow as a proportion of their income.

As a result, and compounded by what RICS have said is the widest gap between new buyer enquires and new sales instructions for eight years, home movers are able to pay more and this has helped to push prices up to levels often out of reach for FTB. 

With many aspiring homeowners now having to put their purchase plans on hold until market conditions change, or they manage to save more money, they remain in rented housing which demonstrates how the affordability of the purchase market has a knock-on effect on demand for rented accommodation.

While we support initiatives to help people get on the property ladder and don’t wish to see anyone who wants to own a home being forced to rent by conditions out of their control, we feel that the perception of rented housing as a poor relation to owner occupied is outdated.

It is important to note that the private rented sector doesn’t just provide a useful option for these so-called ‘reluctant renters’.

We’ve also seen many examples of rented housing being called upon by those who have relocated to other areas but opt for a flexible home while they assess whether the new location meets their needs.    

This helps to illustrate a strength of the private rented sector – it offers accommodation options that are not only affordable but are also flexible, allowing people to turn to it based on their current situation. 

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Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551