For the first time in 14 years, renting in the UK is now cheaper on average than taking out a new mortgage, according to data published by Capital Economics today.
Average mortgage repayments have surged above £1,000 for the first time ever despite tumbling house prices, largely because of the Bank of England’s aggressive rate hike cycle which has drastically increased the cost of borrowing.
While renters have faced a squeeze on utilities bills, average rent payments remained relatively stable over 2022 at £900 to £1,000 a month, according to the data.
Interest costs on mortgages nearly doubled from £260 per month in the middle of 2020 to more than £500 in the second half of 2022.
Source: Capital Economics via Bloomberg
Andrew Wishart, property economist at Capital Economics, told Bloomberg that mortgage costs will exceed rents until the second half of 2024.
This is not to say rents won’t increase too, especially since, as Wishart noted, first-time buyers struggling to get a foot on the property ladder tend to stay longer in rental properties, limiting supply.
A surge in mortgage costs is likely to trigger a continued slump in house prices throughout 2023 as activity in the market cools.
The typical UK property price is £281,684, having fallen 3.6% in quarterly terms, per the latest Halifax house price index data.