10 months ago • 2 mins
Data out on Friday showed it’s now cheaper to rent a home than own one in the UK.
What does this mean?
There’s a reason folk scrimp and save for years to buy a home, besides the freedom to paint the walls without agitating a grumpy landlord. For over a decade, reports have shown that owning a home is cheaper than renting for Brits. But that changed last year: the Bank of England started hiking interest rates in a bid to tame rampant inflation, pulling mortgage rates up from the 1% they averaged over the past few years to over 6%. That means the interest component of mortgage payments has doubled in the last couple of years. That matters: according to Capital Economics’s analysis, the average mortgage payment has hit £1,000 ($1,200) for the first time, making renting the cheaper alternative to taking out a new mortgage. That hasn’t been the case for 14 years, and the same analysis suggests Brits will be better off renting until the second half of 2024.
Why should I care?
The bigger picture: There’s the rock, and there’s the hard place.
Renting might be the cheaper option, but it’s certainly not cheap. Those ramped-up mortgage payments are forcing would-be buyers to rent for longer, and that’s lighting up rental prices too. And because savers are struggling to reach ever-increasing lending requirements, mortgage approvals have slowed to their lowest level since the first Covid lockdown. House prices have dropped off too, with Oxford Economics predicting they could end up as much as 15% lower than last year’s peak.
Zooming out: Hard as nails.
Brits sure are resilient: data out on Friday showed UK household confidence rebounded by the most in almost two years this February, indicating more optimism about their finances and the economy as a whole. But with plenty of predictions that the country’s economy is headed for one of the longest slumps on record, that hardy disposition will really be tested.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
/3 • Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.