Buying beats renting in Aberdeen, but it pays to rent in London

  • Buyers in Aberdeen will be £99,000 better off compared to renters after 7 years
  • Dundee, Glasgow, Cambridge and Edinburgh also compelling to buy vs. rent
  • Buying in London with a 10% deposit takes 18 years to become more cost effective than renting
  • Bournemouth, Huddersfield, Bedford and Swansea also make sense to rent not buy

Aberdeen is the most cost-effective town in Britain for buying property compared to renting. Over a typical seven year period, the average property owner in the Scottish town can expect to be £99,040 better off compared to the equivalent renter, according to research from property website Zoopla.co.uk.

The latest Rent vs. Buy analysis from Zoopla shows that it takes buyers in Aberdeen with a 10% just one year of ownership for buying to become more cost effective than renting. The average property price in Aberdeen is currently £206,060 with average monthly rents at £1,275.

London is currently the most renter-friendly location in Britain. After seven years, a typical London renter would be £82,412 better off than a buyer with a 10% deposit of an equivalent property. It would take 18 years for a London buyer with a 10% deposit to begin to be financially better off compared to the equivalent renter. These calculations are based on a conservative estimate of 4% annual house price growth in the capital.

Bournemouth is the second most renter-friendly town in Britain. With average asking prices of £380,206 and average rents of £1,024 it would take twenty two years for a buyer with a 10% deposit to be better off compared to a renter in an equivalent property. After a seven-year period, a typical renter in Bournemouth would be £30,719 better off than a typical buyer with a 10% deposit.

Lawrence Hall of Zoopla.co.uk said: “Despite taking longer to be better off financially, London remains the holy-grail in terms of property investment. It is much more buyer-friendly outside the capital but with rising average prices and low savings rates, accumulating a deposit has become increasingly difficult. It is important to remember that whilst renters may be better off in the short to medium term in some areas of the country, buyers are making a long-term investment. With most buyers opting for mortgage terms of 25 years, over the long term, buyers are likely to be better off compared to those who choose to rent.”

The Zoopla Rent vs. Buy methodology compares all of the costs associated with buying or renting as well as increases in asset or savings value over time. The analysis forecasts the amount of time it will take for buying to become more cost effective than renting across the largest towns and cities in Britain and compares how much buyers or renters are financially better off after the average tenure of a house.

BEST LOCATIONS FOR BUYING

 

Location

 

Av. Asking Price

 

Av. Monthly Rent

Amount buyers are better off after 7 years (10% deposit)

Aberdeen

£206,060

£1,275

£99,040

Dundee

£96,103

£653

£54,378

Glasgow

£139,841

£722

£40,971

Cambridge

£337,586

£1,334

£28,878

Edinburgh

£224,000

£948

£32,725

Coventry

£191,833

£849

£33,730

Newcastle

£180,516

£812

£33,726

Manchester

£178,069

£781

£29,751

Milton   Keynes

£264,038

£1,066

£25,345

Birmingham

£163,594

£719

£27,171

Source: Zoopla.co.uk (February 2014)

 

BEST LOCATIONS FOR RENTING

Location

 

Av.   Asking Price

 

Av.   Monthly Rent

Amount   renters are

better   off after 7 Years

(10%   deposit)

London

£896,124

£2,619

£82,412

Bournemouth

£380,206

£1,024

£49,082

Huddersfield

£177,119

£561

£7,680

Bedford

£288,598

£959

£7,306

Swansea

£185,373

£631

£204

Source: Zoopla.co.uk (February 2014)

Wriglesworth Vlog: Paper Summary for 11th February 2014

The key macro-economic, personal finance, property and recruitment stories from today’s papers, read by Wriglesworth Junior Account Executive Victoria Heslop.

Monday’s headlines 10.02.14

Economics
The eurozone’s new chief banking regulator says that weak banks should be allowed to fail. It has said that some of the region’s lenders have no future and should be allowed to die, heralding a far tougher approach to supervision across the currency bloc. (Cover of the FT)

The Bank of England is going to give guidance on Wednesday on how quickly interest rates will rise in Britain’s rapidly growing economy. After Mark Carney, bank governor, signalled that the BoE would move away from linking rate rises to unemployment, its Monetary Policy Committee has been considering how to provide clarity to markets without jeopardising growth. Many economists think the bank will use its scheduled quarterly Inflation Report to build on recent utterances indicating there is “no immediate need” to raise rates and that monetary policy will be tightened “gradually”. They also believe the bank will broaden its analysis to include other economic data beyond unemployment, probably including wages and underemployment. (p.2 of FT)

New research from the Business Trends survey, produced by accountancy firm BDO suggests that interest rates could rise in the “very near future”. The report states that business optimism reached record levels in January, signalling rapid economic growth over the next two quarters (p.B4 of The Daily Telegraph)

The Chairmen of Britain’s leading retailers have become significantly more optimistic about the prospects for the economy and have performed a dramatic U-turn on the performance of the government. According to the fourth annual survey of chairmen by headhunter Korn Ferry, 73% of chairmen are optimistic about the outlook for the economy, compared with just 15% last year. (p.B1 of The Daily Telegraph)

Personal Finance
Young people are bearing the burden of increasing levels of debt, according to a poll that shows how the older generation are escaping the squeeze in incomes. People in their 20s and 30s face a stark choice between “putting their lives on hold or racking up substantial debt”, according to the Demos thinktank that commissed the poll. The Populus poll of 1,775 adults found that more than half (55%) of those aged 18 to 24 – and 48% of those aged 25 to 34 – say their debts have increased over the past five years. This compares with a 13% rise for those aged over 65. (p.10 of The Guardian)

Property
Four in every 10 London homes sold for more than £1m last year were bou8ght by foreign buyers, according to new research. The number of homes being sold for more than £1m in Greater London rose to 6,145, up 20% on 2012. The research, from aviation firm Beechcraft Corporation, claims non-British buyers spent a combined £5.1bn on London properties (p.14 of The Independent)

£2 Billion Lending Record for Bridging Industry

  • Industry consolidates expansion with gross bridging lending of £2 billion in 2013
  • Annual lending growth is driven by extra projects, with the total number of loans up by a third
  • Bridging interest rates reach record lows, averaging 1.11% over two months to 1st January

Gross bridging lending totalled £2.0 billion in the twelve months to 1st January, up 3.3% from the annual figure in November 2013.

This brings annual growth in gross bridging lending to 27% – up from £1.57 billion in gross bridging lending in 2012.

In the two month period from 1st November to 1st January 2014, industry gross bridging lending was £419 million, up 5.5% from £397 million in the previous two months.

If lending continued at this rate for a year, gross lending in the next twelve months would be £2.51 billion per year.

Duncan Kreeger comments: “Economic progress feels more solid by the week, and it’s branching out across every area of business. By securing vital projects against property, firms and individuals stand to make the most from a year of great opportunity.

“Bridging has grown up from the industry it once was, and it’s still evolving in 2014. Lenders are expanding and opening their doors to different types of borrower. An economy on the move needs rapid finance that can really get projects started – and short-term secured lending is moving to fill that gap.”

Trends in the Bridging Industry

The most significant factor powering the expansion of gross lending is growth in the number of deals agreed.

Industry loan volumes during the two months ending 1st January increased by 10.8% compared to the previous two month period. This brings loan volumes for the whole of 2013 to levels one third (33%) higher than the preceding twelve months.

Meanwhile, the average value of a bridging loan was largely static. The average loan is now worth £459,000, representing a slight drop of 1.4% from the two months ending 1st November.

On an annual basis, loans in 2013 were larger than the previous twelve months, in line with the long term trend. For the last twelve months as a whole, loans averaged £430,000, or 5.2% more than the average loan in 2012.

Duncan Kreeger continues: “Just a few years ago the average bridging loan was worth half what it is now. Since then, the biggest transformation has been a growing interest from bigger property developers, professional investors and small businesses looking for more significant funds.

“The last few months have seen growth focused on volumes as enquiries are coming in thick and fast. But the long-term trend in terms of loan sizes is also moving upwards. Multi-million pound deals aren’t uncommon anymore, and as 2014 unfolds, even the most ambitious ideas are becoming ever more possible.”

Loan to Value Ratios

Loan-to-value ratios across the bridging industry have risen by almost one percentage point in recent months. In the two months to 1st January the average LTV was 48.1%, or 0.9 percentage points higher than LTVs of 47.2% in the previous two month period to 1st November.

On an annual basis loan to value ratios are still lower than previous highs. The average LTV across all twelve months of 2013 was 46.4% – down from 48.0% in 2012.

Duncan Kreeger comments: “Proper underwriting and a “safety first” approach have always been cornerstones of the best bridging lenders. Higher LTVs are completely consistent with that principle, but as properties grow in value more gearing is not always necessary.

“There is certainly space to lend at higher loan ratios this year, and the industry definitely has capacity to fund bigger loans where needed. Just as business and investment opportunities are opening up, the property market is putting the pedal to the floor. Alongside rates that look set to stay low for some time, slightly higher LTVs could mean more projects will have access to the finance they deserve.”

Bridging Interest Rates

As a whole, 2013 witnessed the lowest interest rates on record for the bridging industry, averaging just 1.19% across the entire year. This compares to 1.37% in 2012 and an average interest rate of 1.55% in 2010, the first year of the West One Bridging Index.

On bi-monthly basis, rates have also fallen to a record low. In the final two months of 2013, bridging loans cost on average 1.11% per month, down from 1.22% in the two months ending 1st November.

By comparison with other asset classes, potential returns for those funding bridging loans remain several times the total return of mainstream investment classes. Monthly product rates currently stand at 4.5 times those of 10 year government bonds, with a monthly spread of 0.87 percentage points.

Mark Abrahams, CEO of West One Loans, concludes: “Nearly seven years on from the financial crisis, markets are still shaking with volatility.

“Equities of all kinds are far too risky to form a large portion of most investors’ portfolios, and most fixed income products are set for years of trauma as central banks begin to wind up artificial bond-buying programmes like quantitative easing.

“As mainstream lenders already feel the first withdrawal symptoms from artificial stimulus and special measures, money from normal investors will be more in demand in 2014. And from a lending perspective, that will also be a serious advantage for privately funded lenders.”

Wriglesworth Vlog: Paper Summary for 6th February 2014

The key macro-economic, personal finance, property and recruitment stories from today’s papers, read by Wriglesworth senior account executive Ludo Baynham-Herd

Wriglesworth Vlog: Paper Summary 4th February 2014

The key macro-economic, personal finance, property and recruitment stories from today’s papers, read by Wriglesworth Account Manager Hugh Murphy

Wriglesworth Vlog: Paper Summary for 3rd February 2014

The key macro-economic, personal finance, property and recruitment stories from today’s papers, read by Wriglesworth Account Manager Hugh Murphy.