Detailed research* from Experian shows that rental payments are catching up with and even surpassing typical mortgage payments for first-time buyers, but in the third quarter of 2016, 84% of UK districts still have rents which are higher than mortgage payments.
And with inflation predicted to hit 4% in 2017, mortgage payments are set to rise further over time.
The rising rents trend following buy-to-let tax rises was perhaps predictable, but Experian’s ‘First-Time Buyers Index’ has confirmed it, with private tenants paying more for their accommodation in 57% (217) of districts during the third quarter of this year, compared to the same period in 2015.
On the other hand, successive interest rate falls means that monthly mortgage re-payments first-time buyers are paying has dropped in 65% of UK districts, this is assuming the loan was for 90% of the property’s value on a two-year fixed rate mortgage over 25 years.
The amount tenants are paying for accommodation is very close, either above or within 10% of the monthly mortgage payments in 27% of UK districts (103), though the question is, how long will mortgage rates remain so low.
10 of these districts are in Scotland where six of these have rental rates exceeding monthly mortgage payments by the greatest margin. Also, Manchester, Salford and Hull in the North of England offer among the most favourable conditions for renters to become first-time buyers.
Jonathan Westley of Experian says:
“What our research shows is that while a mortgage is a major on-going commitment, renters often have a track record of making monthly payments which are often similar to what they might pay on a mortgage.
“Lenders already apply rigorous checks to assess whether mortgage payments will be affordable for would-be homeowners, following the Mortgage Market Review. However, by taking rental payments into account, lenders can get a more complete picture of a borrower’s financial track record and make more suitable lending decisions.”
Table 1: Rent and mortgage payment comparisons in UK for Q3 2016
| Number of districts | % of districts | |||
| Cheaper to rent than buy | 321 | 84% | ||
| Cheaper to buy than rent | 51 | 13% | ||
| Rental payments – increased | 217 | 57% | ||
| Rental payments – decreased | 66 | 17% | ||
| Rental payments – no change | 100 | 26% | ||
| Mortgage payments – increased | 119 | 31% | ||
| Mortgage payments – decreased | 248 | 65% | ||
| Mortgage payments – no change | 16 | 4% | ||
| Rent & Mortgage – Both Increased | 80 | 21% | ||
| Rent & Mortgage – Both Decreased | 50 | 13% | ||
| Rent Increased, Mortgage Decreased | 137 | 36% | ||
| Mortgage Increased, Rent Decreased | 16 | 4% | ||
Table 2: Top 10 districts where rental payments exceed mortgage payments by % difference
| District | £s Difference rental v mortgage payments | % Difference rental v mortgage payments | Median Rental Payment | Median Mortgage Payment |
| Overall | -£113 | -13% | £885 | £998 |
| Glasgow City | £179 | 28% | £650 | £471 |
| North Ayrshire | £111 | 25% | £450 | £339 |
| Merthyr Tydfil | £116 | 24% | £475 | £359 |
| North Lanarkshire | £112 | 24% | £475 | £363 |
| West Dunbartonshire | £106 | 22% | £485 | £379 |
| Dundee City | £101 | 20% | £500 | £399 |
| Manchester | £156 | 20% | £795 | £639 |
| Falkirk | £81 | 17% | £475 | £394 |
| Salford | £116 | 17% | £695 | £579 |
| Hull | £76 | 16% | £475 | £399 |
*For the purposes of this research, it is assumed that a first-time buyer would take a two-year fixed rate mortgage with a 90% loan-to-value ratio over 25 years. Mortgage rates are taken from the Bank of England at the end of each quarter.
Jonathan Westley is Managing Director of Consumer Information Services at Experian.
Rents Rising to Meet Mortgage Payments https://t.co/bga3rMGb3W
— LandlordZONE (@LandlordZONE) November 10, 2016