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To buy or to rent: soaring mortgage costs mean it’s almost 50% more expensive to buy in London

by | May 10, 2024

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New research lays bare the challenges faced by prospective buyers in getting on London’s lucrative property ladder, with mortgage costs across the capital revealed to be 42% higher than average rental prices – substantially higher than other cities like Manchester, Leeds and Bristol.

Market analysts at London-based property management specialists, SBA Property Management, found that across the city homeowners spend around £797 more on mortgage payments than tenants pay on rent each month.

The research compares average rental costs with estimated mortgage payments across all property types, based on a typical 25-year mortgage with a 5% interest rate and a 15% deposit.

 
 

Mortgage costs were found to be especially high in the more affluent boroughs of inner London, where mortgage payments are roughly 66% or £1,232 more per month than rental costs.

In Kensington and Chelsea – the borough with the biggest disparity in rental and mortgage costs – homeowners can expect to pay £2,927 more per month on their mortgage than they would do renting a property in the same area.

Even in London’s more affordable areas, the added costs associated with a mortgage are still disproportionately higher than in other parts of the country.

 

While Londoners typically spend 42% more on mortgage payments than rent, in Manchester monthly mortgage costs are only around 16% more per month. In Bristol, the monthly cost of a mortgage is 18% higher than rent.

Elsewhere, mortgage costs in Leeds are roughly 21% higher than the average price of rent, while in Liverpool and Birmingham the rates are 29% and 31% respectively.

Tim Darwall-Smith, Director at SBA Property Management, said: “London’s property market has always been challenging for prospective buyers, however in recent years rising house prices and borrowing costs have pushed homeownership even further out of reach for many people.

 
 

“A London deposit, along with other costs like stamp duty and legal fees, can take years of saving for – but as the research shows, the cost of buying in the capital is still significantly higher than other parts of the country even after putting down a deposit.

“Rising homeownership costs are steering would-be buyers toward the rental market, as well as other cities where property prices and mortgage costs are more affordable.”

High house prices have always stoked a strong appetite for more affordably priced rental accommodation in London, however in recent years the pendulum has swung even further with more people renting and fewer buying.

 
 

Data from the annual English Housing Survey shows that the proportion of owner-occupied households with a mortgage has fallen by 4% in London over the last three years. In the same period, the share of privately rented properties in the capital has increased by the same rate.

Higher financial hurdles associated with homeownership, exacerbated by the cost-of-living crisis, mean that for many people living in London, renting is the only option until enough money can be saved to afford a deposit and cover monthly mortgage costs.

As the research from SBA Property Management shows, there are still areas where prospective buyers can find mortgage costs much lower than the average for the capital. Newham, Tower Hamlets and Barking & Dagenham are the three boroughs where the added costs of repaying a mortgage rather than renting a private property are lower than the average for England as a whole. In Barking and Dagenham, tenants only need to find an additional 27% or £364 per month on top of rent to cover monthly mortgage payments.

 

Greenwich, a popular borough for investors and first-time buyers, has mortgage costs averaging at a more reasonable rate of 34% or £563 more per month than rent. At the other end of the spectrum, the areas with the greatest step up from rental payments to mortgage costs are Kensington & Chelsea, Richmond upon Thames, City of London and Camden. In these boroughs, mortgage payments amount to anything from £1,738 to £2,927 more per month than average rental prices.

There are signs that the Bank of England may cut interest rates later this year, however until then mortgage costs are expected to remain high for homeowners in the nation’s capital.

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