With more and more landlords exiting the market higher rents are making tenant’s life a misery. But the reverse is true for first time buyers who are now able to enjoy discounts and mortgage payments comparable to rental prices.
Renters’ woes
The UK does not have enough rental properties, according to Rightmove’s Director of Property Science Tim Bannister.
Landlords are selling up due to a combination of tax changes, higher mortgage rates and much needed, but still onerous regulations that have made their lettings uneconomical. This is a mass movement, with 31% of landlords surveyed in a recent NLRA poll wanting to cut down on their rental properties. But at the same time the Royal Institution of Chartered Surveyors (RICS) found rental demand at a 5-month high in March, with Rightmove reporting an average of 13 enquiries per rental property. That’s nearly triple the average seen in March 2019.
But rents rise
With such an imbalance, it is no surprise that rents jumped another 6.2% over the past year. In hard earned cash terms, this means parting with an average of £1,024 per month for a one bed flat in Brentwood and £1,280 for Lewisham. Set against the UK’s £35,464 salary, that equates to over 40% of a person’s take home pay.
Temporary discounts
This exodus of landlords is keeping the first time buyers’ market busy with the average price of flats actually falling by 1% to £227,188 over the last year.
This blip will not last. But while it is here, so too are price discounts. And who doesn’t love a discount! These discounts are largely focussed around first-buyer properties such as one bed-flats and can be chunky. Very chunky.
Weston Homes is offering up to £20,000 off at most of their developments, whilst the Discount Market Sale scheme also offers properties at their developments in Sydenham, Barking and Hayes for a 20 or 30% discount which is a huge help onto the ladder for qualifying buyers. And these flats are luxurious with fully fitted kitchens and many extras included in the price.
Renting is not cheaper
With rental prices rocketing and flat prices down, the difference in monthly cost between buying and renting is marginal – even with interest rates at a 16-year high.
For example, using Lloyds First Time Buyer mortgage with a 5-year fixed rate of 4.71% to buy a £330k property in Barking (assuming a 10% deposit) would mean a monthly payment of £1686.
Try and rent a one bed apartment in the same area and you’ll need to be nimble – Rightmove only have 5 available on their portal. Second, you’ll make minimal savings with prices on their portal ranging from £1300 to £1525 per month – and of course when you rent you are paying off someone else’s mortgage when, as a buyer you could be paying off your own mortgage.
Buyers do need to cover additional monthly costs of service charge. But most landlords pass their service charges on to the tenants – it is simply included in the rental value they charge.
Buyers of a quality new build home with a 10 year structural warranty will benefit from limited repair costs and lower bills from an energy efficient building with all new appliances.
Renting is not investing or stable
The renter’s reform bill is promising tenants more rights and protection, including abolishing no fault evictions. But, landlords will still be able to move you out and sell their properties whenever they like.
But, taking the mortgage example for a 1 bedroom apartment at Abbey Quay in Barking noted earlier – if you buy your own £330k home and keep up the repayments, you are secure and cosy in your own place. And five years down the line your monthly repayments and initial deposit will mean you’ll now have a property investment of £69k. After 10 years it will be £114k.
Better still, Land Registry shows house prices shot up 40% over the last decade, with new build prices rising by over 70%. With UK interest rates looking to have peaked, a return to strong price growth could be just around the corner, giving buyers an even bigger equity pot.
Renting no longer stacks up.
