Why renting is cheaper than buying a house in Coventry- a property expert tells all
Renting has now become cheaper than buying a home and repaying a mortgage for the first time since 2010. The difference in cost of renting versus buying is at the forefront for many first-time buyers, who account for one in three home sales.
First-time buyers have historically looked forward to paying less mortgage repayments than rent. However, with mortgage rates remaining at an all-time high for 2023, the cost of repayment has become more expensive than rent on a similar property.
Here’s a thought. Imagine that the current property you are renting, you are now eager to buy with a mortgage on the following broad terms of a 15% deposit on a 30-year term with a mortgage rate of 5.6%.
For first-time buyers, Jag has found that the monthly rent is £122 cheaper on average compared to the monthly mortgage repayment on the same property, meaning that renting is more affordable currently than buying for this specific group under the given assumptions. This shows that higher mortgage rates have impacted first-time buyers significantly.
“Over the last year, these mortgage repayments have increased by a third, a notable increase in a short period of time. While repayments have experienced a substantial increase due to high rates, rents have risen by a lower 10.4% over the same period, and this combination of factors has contributed to the cost of buying more expensive than renting,” Jag said.
This chart by Zoopla shows the difference between the average rent and monthly mortgage repayments since 2010, showing the balance of how renting and buying has changed over the years, reflecting changes in mortgage rates, property prices and other dynamics.
“From 2010 to the time leading up to the mini-budget fallout in autumn 2022, average mortgage repayments for first-time buyers were consistently lower by £210 per month compared to renting on average. This made it financially feasible for many first-time buyers to consider purchasing larger homes, including 3 and 4-bedroom houses.” Jag said.
He added that the market dynamics shifted since autumn 2022, which resulted in a ‘shrinking difference’ between mortgage repayments and rent which has been influenced by factors from ‘interest rates, housing prices, government policies and economic conditions’.
How can I make my mortgage repayments cheaper?
If you still want to buy a property, Jag recommends increasing the size of your deposit as this can have several impacts on your mortgage and financial situation such as:
- Lower monthly mortgage payments – This means you’ll need to ‘borrow less money’ from the mortgage provider which leads to lower payments which can improve your ‘financial flexibility’.
- Reduced interest costs – As your loan amount is smaller with a larger deposit, you’ll pay less interest over the life of the loan which means ‘long-term savings’ and can ‘reduce years off your mortgage term’.
- Improved loan-to-value (LTV) ratio – A higher deposit means a lower LTV ratio, which is ‘viewed more favourably’ by lenders which means ‘better interest rates and terms’.
- Potentially better interest rates – A smaller loan amount relative to the property’s value (lower LTV) could make you eligible for ‘competitive interest rates’, saving costs over time.
- Quicker loan approval – A bigger deposit helps streamline the mortgage approval process as lenders may perceive you as a ‘lower-risk borrower’.
- Reduced financial stress – Lower monthly payments from a larger deposit can ‘reduce your monthly budget’ and ‘alleviate financial stress’, allowing you to allocate funds for other needs and saving goals.
- Builds equity – A bigger deposit means a higher equity stake which can grow overtime as you make payments, and the ‘property potentially appreciates in value’.
- Better negotiation power – A lump sum deposit also provides a ‘stronger negotiation power’ when dealing with lenders and sellers.
- Faster property ownership – With lower repayments you might be able to pay your mortgage off faster, leading to ‘full property ownership sooner’.
Consider changing your home requirements
“Being flexible with your first-time home requirements can open more options and make it easier to find a property that fits within your budget,” Jag said. Here are his considerations when re-evaluating your requirements.
- Property type – Choosing a smaller property like a flat or terraced house can often be more affordable than a semi-detached or detached home. While the size might be different, these properties can still offer ‘comfortable living spaces’.
- Location – Exploring areas ‘outside of major cities’ or ‘in suburbs’ can often yield more affordable more properties. While the commute may be longer, you might find properties that align better with your budget.
- Amenities and features – Consider which features are ‘truly essential’ for your lifestyle. While some amenities may be nice to have, prioritising them can help you find a more affordable property.
- Future expansion – If you’re open to it, consider properties that might have ‘potential for future expansion or renovation’ as this can allow you to start with an affordable option and build on it as needs change.
- Prioritise must-haves – Make a list of must-have features in your new home and focus on finding properties that meet those criteria. ‘Being open to compromising on non-essential features’ can also expand options.
- Long-term goals – Think about your long-term plans. ‘While a smaller property might be suitable for the next few years, will it still meet your needs as your family grows or your circumstances change?’
- Financial flexibility – Opting for a cheaper property might provides you with flexibility in terms of ‘mortgage repayments, maintenance costs and other expenses’.
- Consult professionals – When re-evaluating your home requirements, ‘it’s a good idea to consult with an estate agent who can help identify properties that match your budget and needs’.
- Renovation potential – Consider properties that may need renovating as it can result in a ‘more affordable purchase upfront’ and the ‘opportunity to increase the property’s value’ over time.
- Timing – Keep in mind that the property market is dynamic. ‘Being patient and waiting for opportunities’ where property prices are more favourable which can lead to better deals, but once the interest rates decrease, this will ‘stimulate the market’ and ‘push house prices up’.
Jag added that “finding the right home involves striking a balance between your budget, needs and preferences” and being open to adjustments can lead to “finding a property that offers a comfortable living space within your means.”