According to the Financial Times, the number of home renters in the UK increased by nearly 25 percent during 2011.
Many Brits continue to rent because they are unable to afford home deposits and cannot qualify for mortgages. Renting is becoming the new normal in the UK and the term “Generation Rent” was coined to describe young Brits choosing to rent rather than purchase residences.
Though renting may seem like a smart idea on the surface, it can actually cost more money on an annual basis.
Cost Difference In Buying Vs. Renting
A recent survey from property website Zoopla reveals that Brits could save £1,080 each year if they opted to purchase property rather than rent. The survey found that in 90 percent of the top 50 British towns, buying a home is less expensive than renting one. It costs nearly £1,100 less each year to service an interest-only mortgage on the average British property than it does to rent an accommodation.
Rent for the typical two-bedroom flat currently averages £668 a month. Selling price for an equivalent property averages £138,769. With a five percent interest-only mortgage, servicing will cost £578 each month, a monthly savings of £90 over renting. On the list of top 50 British towns, only Dundee, Huddersfield, Bournemouth, Cambridge, and Swansea offered less expensive rental costs than purchasing prices for housing. The discount in Swansea was most marked at 9.5 percent.
Mortgages Becoming More Affordable
Record low rates of interest are causing mortgages to be cheaper than ever before. This is excellent news for homebuyers who qualify for this financing. The home deposit is the largest barrier for anyone wishing to purchase a home in the Britain, say experts. First-time homebuyers must save tens of thousands of pounds for a deposit so they can get onto the housing ladder. For a young generation struggling to find work and make ends meet, this can be very difficult to do.
Interest-only mortgages may be very attractive right now but they are also difficult to get, particularly those with a 90 percent loan-to-value. Most mortgage lenders offer a maximum of 75 percent loan-to-value on their interest-only mortgages.
A first-time homebuyer is more likely to qualify for a repayment mortgage, which carries higher payments. First-time buyers with a poor or non-existent credit rating are not likely to qualify for any mortgages. Therefore, building a respectable credit history should be the primary focus before purchasing a home.
Housing Prices Are Falling
Falling housing prices are another factor making buying more affordable for many Brits. In November, home prices fell faster than anticipated, according to the Royal Institution of Chartered Surveyors. Since fall began, more potential homebuyers have entered the market across the country. Though demand for homes is still low from a historical perspective, more people who can afford to buy homes are expressing interest, causing increasing optimism within the real estate industry.
The Bank of England revealed that in October, mortgage approvals for home purchases reached their highest level since the beginning of 2012. In August, the Government Funding for Lending scheme was launched, increasing cash flow to firms and households by billions of pounds. Mortgage lenders have since been engaged in a pricing war, particularly for homebuyers with substantial deposits.
London is only area of the country to experience a rise in prices and this is no surprise to most surveyors. For years, prices in London have been increasing, though properties in the city are in high demand with buyers from overseas. According to Halifax, this trend will not change in 2013 and housing prices in other areas of the UK should remain flat during the coming year.