UK Property: Buying vs. Renting

It seems more and more people are looking at buying a home rather than renting one, citing that “it’s cheaper to pay a mortgage than it is to pay rent”, and they have a point.

The average UK home now costs £162,712 (Nationwide figure), and the typical Standard Variable Rate (SVR) is now 3.99% (Halifax figure), which means that the average monthly repayment mortgage costs £857, while the average rent here in the UK is currently £1,344 a month.

But what will happen when rates rise?

Mortgage lenders are already putting up there rates, and that’s while the Bank of England (BoE) still has the base rate at 0.5%. What happens when rates are forced higher, for example if/ when Britain loses her AAA credit rating?

The table below shows the increase in the cost of repaying different mortgage amounts when mortgage rates rise.

Table Of Mortgage Repayment Scenarios

Notes: Repayment mortgage. Mortgage term 25 years.

It is my opinion that within the next 2 to 3 years SVRs will rise sharply and when they do the housing bubble will burst sending property prices in most of Britain considerably lower. This fall in house prices will be accompanied by a fall in the cost of rent. Therefore anyone buying a home now should factor in the both the higher cost of their monthly mortgage repayments and the lower value of their home.

In short, in 5 years time I expect the economics of renting a home to be far better than that of buying one.

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