Is It Cheaper Buying Property In London or Renting?

by | Monday 20th May 2024 | Mortgage News

Is it better to buy property in London, or to rent

Is it better to buy property in London, or to rent

Londoners looking to buy a home are facing stark financial realities as new research reveals that monthly mortgage payments are, on average, 42% higher than rental costs. The discrepancy is even more pronounced in inner London, where homeowners pay 66% more than tenants, equating to an additional £1,232 per month. So does it still make more financial sense to buying property in London? Or are renters better off? Lets take a look at the data.

How Much Does It Cost Per Month If You Are Buying Property In London

The research, conducted by SBA Property Management, and released on their website highlights the challenges prospective buyers face in entering London’s property market. With a typical 25-year mortgage at a 5% interest rate and a 15% deposit, the average homeowner in the capital spends £797 more on mortgage payments than their renting counterparts. Inner London boroughs, particularly the more affluent areas, exhibit the steepest differences. In Kensington and Chelsea, the gap is most glaring, with mortgage payments soaring to £2,927 more per month than rental costs. Even in more affordable boroughs, such as Newham and Barking & Dagenham, the additional cost of a mortgage remains significant but comparatively lower than the London average.

The research seems to show that while Londoners endure a 42% premium on mortgage payments over rent, other cities show smaller disparities. In Manchester, mortgage costs are about 16% higher than rent, whereas in Bristol, the figure is around 18%. Leeds, Liverpool, and Birmingham also present lower differentials of 21%, 29%, and 31%, respectively.

Data Recorded By SBA Property Management

Tim Darwall-Smith, Director at SBA Property Management, commented, “London’s property market has always been challenging for prospective buyers. Rising house prices and borrowing costs have pushed homeownership even further out of reach for many people. As our research shows, the cost of buying in the capital remains significantly higher than in other parts of the country even after accounting for a deposit.”

More People Renting?

The high financial barriers to homeownership have driven many potential buyers towards the rental market. Data from the annual English Housing Survey indicates a 4% decline in owner-occupied households with a mortgage in London over the past three years, while the proportion of privately rented properties has increased by the same rate.

This shift towards renting is not solely due to immediate affordability. Rising costs of living and the substantial savings required for a deposit further delay homeownership dreams. However, the research points out more affordable boroughs where mortgage costs are closer to national averages. In Barking & Dagenham, for instance, the extra monthly cost of a mortgage over rent is just 27% or £364, and in Greenwich, it is 34% or £563. Boroughs like Richmond upon Thames, the City of London, and Camden see mortgage costs ranging from £1,738 to £2,927 more than rental prices, further emphasizing the economic challenge.

The Future Of Mortgage Rates

Despite the current financial climate, there may be a silver lining. The Bank of England has hinted at potential interest rate cuts later this year, which could alleviate some of the pressure on mortgage costs. However, until such changes take effect, high mortgage payments will persist for London homeowners. It’s also worth noting that as landlords with mortgages face increased payments due to rising interest rates, these costs are often passed on to tenants in the form of higher rents. This dynamic means that even the rental market may see upward pressure on prices, further complicating the financial landscape for Londoners.

Speak To A Mortgage Professional If You Are Buying A Property In London

Prospective buyers and home owners are advised to consult with a mortgage advisor to navigate these challenging conditions. A mortgage professional can provide guidance on securing the most competitive and beneficial mortgage rates and products, ensuring that financial decisions are well-informed and strategically sound. At Oportfolio, our expert advisors are here to help anyone who needs it, to secure a comfortable rate and product. Call or email our team today if you are buying a home in London to see how we can help.

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If you have any questions about UK mortgage news or or anything you’ve read then please get in touch. We’d love to hear from you.

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