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Rent or buy? The property pendulum swings again

New research shows it is cheaper to buy a property than rent in 80% of towns and cities due to falling house prices and rising rents.

 
Rent or buy? The property pendulum swings again

New research shows it is cheaper to buy a property than rent in 80% of towns and cities due to falling house prices and rising rents.

 

Rents creeping up

 

Rents have been rising steadily, hitting an average this month of nearly £700 a month according to figures from property services company LSL, which owns the UK's largest lettings agency network. Rents are now 4.5% higher than a year ago and demand remains strong.

 

‘Rents have been creeping upwards, month in, month out for the last year, and now stand just a few pounds shy of £700 per month,’ said David Brown, commercial director of LSL. ‘Constrained mortgage finance is choking off the number of first-timers able to get on the ladder. With rising demand outpacing the increase in supply, rents can only go one way.’

 

This is, of course, good news for landlords – but a disaster for the millions of potential buyers who are struggling to save enough for the deposit on a home of their own. With the cost of renting likely to rise and house prices now stabilising and even falling in some areas, is it going to be cheaper to rent or buy?

 

According to property website zoopla.co.uk it is now cheaper to buy a property than rent in 80% of towns and cities due to falling house prices and rising rents. However, all housing statistics have to be read with your local area in mind as they are not homogenous across the country and, as always, demand for somewhere to live is higher in London and the south east than elsewhere.

 

Monthly rent on a two-bedroom flat is now typically 9.9% higher than interest-only mortgage payments on a comparable property, based on an interest rate of 5%, according to Zoopla. It is worth bearing in mind, however, that 5% is probably the lowest rate you will get if you need a 90% loan to value.

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16 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Nov 23, 2010 at 12:51

Lorna you forgot to mention regarding the Taylor wimpey, barrat homes legoland is that they are over priced cupboards built to within a mm of the regulations. With boris wanting to go back to the parker morris standard you would be best to wait and buy new build in 6 months - 1 year thus getting more for your money.

People don't want to live in flats apart from in our major urban centres. unfortunately most of our towns and cities have these lifestyle flats which effectively no one really wants.

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Anonymous 2 needed this 'off the record'

Nov 23, 2010 at 13:03

a lot of people who rent are not in the market for a property of equivalent value. Its alot cheaper for me to rent a two bed flat and watch the value of the props i'm interested in owning continue to fall

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Gurinder Chhabra

Nov 23, 2010 at 13:32

A real comparison on Shared Ownership vs Outright Purchase

http://kukad.posterous.com/shared-ownership-mathmatics

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Jonathan

Nov 23, 2010 at 14:18

It's not cheaper to buy if house prices drop as you will lose the money they drop buy and have to add that into the equation.

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Andrew Gill

Nov 23, 2010 at 15:06

It's slightly cheaper to rent but renting has risks... A landlord could turf you out with a few months notice. Then you have to find another place and move all your stuff which is a hassle. People like the security of ownership and making a home that matches their likes/dislikes. My view is that if you could afford it and plan to live somewhere for more than 5 years then buy, otherwise rent.

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Roger Bell

Nov 23, 2010 at 15:08

For anyone earning less that £22,000 pa it is not possible to buy or rent. Even if they have got the deposit. With the disappearance of bedsit properties thanks to the overzealous hounding of landlords by Shelter and The hard left in New Labour there are less properties available for low earners at around £75 per week which is all they can afford. Thismeans that a large proportion of our most vulnerable are left homeless.

Congratulations Golden Brown and Co. is this what you planned with your ridiculous HMO legislation?

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Roger Bell

Nov 23, 2010 at 15:13

Andrew Gill has no idea about the wants and needs of the majority of folk today. I have been letting property for 41 years in London and latterly in South Hampshire. The average term of occupation for a furnished tenant is 18 months. Most People WANT to move about only very few want to stay indefinitely.

All a tenant has to do is ask the landlord "How long do you want to let the flat for?" and most will say "indefinitely."

Your call.........

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William Phillips

Nov 23, 2010 at 15:21

The problem with these sums is that the price meltdown-- which in an illiquid market such as property is always a slow drip, never a cascading collapse-- may only just have begun.

You, however, are making the largest one-off financial commitment of your life, with no near-assurance (unlike the good old days) that recovering prices will lift you comfortably clear of the deficit-finance zone within a few years.

Maybe the politicians, who for two years have fixed the market to put a safety net under prices, are so clever that they will repair the ordinary cycle and underlying rising trend too. Or maybe this time it really is different. Stagnation would not be a novelty. There was little net change in housing prices between the early 1930s and late 1950s, and in those days home ownership was a growing business, not a replacement market.

Possibly other asset classes will yield more over the next ten years than the first time buyer's deposit. Possibly rent will be seen to have been less thrown away than loan interest payments. Don't ever think that what a middle aged person has become accustomed to is an eternal law of economics.

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Alice Stone

Nov 23, 2010 at 15:34

Grant Shapps stated recently that a few years of house price stability are needed to allow salaries to catch up. This really amounts to a relative loss in relation to inflation - and this is probably what will happen. Seems fair enough ...

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Dislexic Landlord

Nov 23, 2010 at 16:05

Buying is not for everyone and never has

I good Tenant left me to buy a home 12months ago and she called me to ask if I could recomend a Central Heating has gone off It turns out she need a new boiler

THis is her words I wish I had never bought a property its the worsed thing I ever did and I wish I was renting

THe boiler problem is just one thing on a long list of things that have gone wrong she works for the Civil Service and she is loseing her job in Jan 2011

She is in Negitive equity too so she cant afford to Sell

She dosent know where to turn for help and she is very worried indeed

Ive tried to give her advice such as look at the long term but all she can see is gloom

If the above was still in the house she rented for me she would get Housing Allowance to cover nearly all of her rent and she would not be worried about loseing the home she has put every penny into it

home owning is not always a bed of roses

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Trustim

Nov 23, 2010 at 16:10

Are we about to see a change over the long-term? Goverment debt, Reduced housing benefits, restricted period of council house tenancy.

We must remember the government/councils are the biggest purchaser of rented property. Reduced benefits could mean lower rents for landlords this could then spread to the private sector reducing rents overall.

But, there will still be pockets where rents will hold up.

A reduction in rents is well overdue!!

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n hedley

Nov 23, 2010 at 17:41

"Grant Shapps stated recently that a few years of house price stability are needed to allow salaries to catch up. This really amounts to a relative loss in relation to inflation - and this is probably what will happen. Seems fair enough ..."

Inflation will cause a crash as the base rate will go up as will mortagge rates. Its only the 0.5% BR thats propping up the market.

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stiff watt

Nov 23, 2010 at 19:35

Quote: "Monthly rent on a two-bedroom flat is now typically 9.9% higher than interest-only mortgage payments on a comparable property, based on an interest rate of 5%, according to Zoopla. It is worth bearing in mind, however, that 5% is probably the lowest rate you will get if you need a 90% loan to value."

Yes but if you increased your mortgage from 90% to 100% (so no deposit needed) the interest costs would increase by 11.11111% (or more).

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stiff watt

Nov 23, 2010 at 19:40

Dilsexic lordland always talks good sense.

I like it!!!!

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Lets Face It

Nov 25, 2010 at 09:46

Me thinks its a self regulating system, if folks can't afford to buy they rent, if they can't afford to rent, they shack up or they walk the streets. My kids are back home after years of being elsewhere. Its all imploding and has been for some time.

The average house price and rent has got to fall until its affordable or we are all going to end up living with our grannies.

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Peter Jason Taylor

Nov 28, 2010 at 23:37

"Let's Face it" above has the right idea.

But it's not just a question of which of rent or mortgage interest costs more. Ownership brings other costs too, such as maintenance and building insurance, which are paid by the landlord on a rented property.

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