Monday, June 17, 2024, 6:00 a.m
Renting remains significantly more affordable than buying a home with a five per cent deposit in the UK as lenders raise home loan rates, according to the latest Hamptons Monthly Lettings Index.
Would-be homeowners with a five per cent deposit currently pay an average of £300 a month more in mortgage repayments than if they continued to rent, data shows.
The financial burden is most pronounced in London, where buying a home costs an extra £775 a month, or £9,300 a year, compared to renting.
It comes as average two-year and five-year fixed mortgage rates rose to 5.93 percent and 5.50 percent between early May and early June. The average two-year rate last topped six percent on Dec. 7.
Aneisha Beveridge, head of research at the Hamptons, said: “High mortgage rates have forced buyers with small deposits out of the market, forcing more households to rent for longer.
“The increase in the monthly cost of buying a home with a small deposit has made it unviable to buy in most places south of Birmingham,” she added.
Bank of England figures show the average mortgage rate for buyers with a five per cent deposit is currently 6.1 per cent. Mortgage rates would have to fall to about 4.2 percent to break even with the cost of renting and buying.
It’s a tough time for potential buyers, who remain stuck in the rental market due to stagnant wages and economic turmoil affecting mortgage rates.
The Bank of England’s interest rate hike has increased pressure on households, with the proportion of mortgages in arrears continuing to rise, according to fresh data.
Life is not much better for landlords either, as competition for affordable places to live raises rent prices, especially for smaller properties. Hamptons said annual rent growth has averaged around seven percent each month nationwide this year.
Labor leader Keir Starmer promised in his party manifesto to work with local authorities to prioritize first-time home buyers.
He also promised to “put in place a permanent, comprehensive mortgage guarantee scheme to support first-time buyers who are trying to save for a large deposit, with lower mortgage costs”.
The Conservatives have expanded their mortgage guarantee scheme to help more than 80,000 buyers over the next five years and increase the number of 95% loan-to-value deals available.
But Beveridge said the effectiveness of the schemes “will probably be determined by Threadneedle Street rather than Downing Street.”
“The extent to which the Bank of England cuts rates will affect the number of potential buyers with small deposits more than the best-designed government policy.
“This analysis also suggests that in a world of high interest rates, the take-up of the Tories’ zero capital gains tax incentive for property owners to sell to their tenants is likely to be quite low as well.
“Rather, a Help to Buy style program is better suited to help tenants with small deposits become home owners, particularly compared to a mortgage guarantee scheme,” she explained.