Buying versus renting: which is better at the moment?
Both mortgage costs and rents are increasing in the wake of the Bank of England’s interest rate rises, and countless people are finding their plans changing as a result.
There’s a lot of uncertainty in the property market at the moment. It’s not only homeowners who are affected by rising interest rates.
The current turbulence in the mortgage market is affecting people paying rent as well as those paying mortgages, says Aaron Strutt of Trinity Financial. He explains: “The Bank of England keeps pushing up the base rate and in response, lenders raise the price of their mortgages. The buy-to-let sector is being hit hard by the rising rates, with a shortage of new landlords entering the sector and much tighter lending acceptance criteria. As mortgages and taxes increase, more landlords are passing on their raised costs to tenants.” So not only are rents becoming more expensive, but it’s also getting harder to secure a tenancy as the pressure on supply increases.
But still, this doesn’t mean that buying is necessarily a better option under current conditions. Renting might be an option for people not wanting to commit to anything long-term at the moment. Strutt says: “Understandably, some people would rather rent a property and watch the market to see what happens. It seems likely the Bank of England base rate will increase again, bringing more instability to the property market.” Moreover, with fewer five and ten per cent deposit mortgages available, borrowers really need larger deposits to get a relatively competitively priced deal, and this means that more people simply can’t afford to buy property at the moment.
There is, however, an expectation in some quarters that a market correction is imminent and that property prices will come down in many areas. Strutt says: “This means if buyers wait, they may get a cheaper mortgage deal as well as a lower purchase price. Though it is worth remembering that over the years there have been lots of predictions that house prices will come down and they haven’t come true. Admittedly, this time it is hard to see how they won’t come down a bit, but there are no guarantees.”
Strutt predicts that more landlords will sell up, leading to an increasing number of flats and starter homes for sale. And regardless of market conditions, first-time buyers still want to get on the property ladder and people will always want to move house. The property market may be in a state of uncertainty, but people will always need homes.
