In the current environment, should they stick or twist?
For the first time in 13 years, renting is now cheaper than a first-time buyer mortgage, according to the latest data from Zoopla.
The estate agent company estimates that average monthly rental payments in the UK are now lower than the average mortgage repayments for first-time buyers with a 85% loan-to-value (LTV) mortgage.
In this article, brokers discuss renting versus first-time buyer mortgages, and what they are recommending to customers.
Renting becoming more attractive
Imran Khan (pictured left), co-founder and chief executive at PropertyLoop, said the current high interest rates have made renting a more viable option for first-time buyers, despite rents also reaching record levels.
“In the UK, the average rental cost is now £1,261 per month, and £2,145 in London; this surge in rent is a direct response from landlords facing escalating mortgage payments,” he said.
However, Khan added that the math for a first-time buyer mortgage no longer adds up due to projections of interest rates climbing to between 6% and 7%. Khan has witnessed a substantial decline in demand from first-time buyers who find the market’s financial complexities too daunting.
“For them, renting offers flexibility and a shield from unpredictable mortgage costs; our advice to clients is to opt for renting in this volatile market until interest rates stabilise and inflation is under control,” he said.
Graham Cox, founder at Self Employed Mortgage Hub, agreed with Khan that as mortgages have become more expensive, a greater number of people are looking to rent.
“Yet, we have a housing market not fit for purpose, with the private rented sector acting as a poor substitute for high quality social housing,” he said.
However, once the new landlord reforms kick in, Cox believes that renting will become a more attractive option to many.
“What would make it even more attractive though, is if we actually build social housing at scale, increasing competition for the private rented sector and lowering rents; but I will not hold my breath,” Cox said.
Renting versus mortgages
Meanwhile, Richard Campo (pictured right), founder at Rose Capital Partners, said the view that renting has become cheaper than a first-time buyer mortgage shows a “lack of financial education”.
“In the most simplistic of terms, roll the clock forward on owning a house, with a 25-year repayment mortgage versus renting for 25 years, the answer of who is in a better position after the quarter century is clear,” he said.
Campo believe it is ‘ludicrous’ to think throwing away money on rent will put you in a better position than owning a home.
While both interest rates and property prices are higher at present, he said these things ebb and flow over time.
“You need to have a long-term vision of where you want to be from a financial security point of view, versus simply trying to save the most money today,” he said.
Stephen Perkins, managing director at Yellow Brick Mortgages, said that while renting is cheaper and more suitable for some, he agreed with Campo that it is dead money. With mortgage rates falling and house prices also in decline, Perkins believes that rents will not likely be cheaper for long.
“There is still plenty of enquiries from first-time buyers at the moment waiting for the right property at the right price, before they pounce on to the ladder,” he said.
What are you advising your first-time buyer clients at present? Let us know in the comment section below.
