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)

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Paper Summary: 4th September 2013

Economy

The UK economy is showing strong signs of recovery as it is forecast to grow almost twice as fast as previously expected according to new predictions from the Organisation for Economic Co-operation and Development (OECD). The British economy GDP is thought to grow by 1.5% this year, which is up from the 0.8% it had previously predicted. In this report the UK was pulled out as one of the developed economies noted for showing encouraging rates of activity, alongside Japan and the US. On the other hand growth in emerging economics has been more restrained. Latest figures in the UK signal there is stable growth in the third quarter with positive readings in surveys for the manufacturing, construction and services sectors. Recent changes in governmental housing policy are also said to be having a good impact on growth expectations. The construction sector is crawling out of the bad lands, having grown at its fastest rate since September 2007 this August according to the purchasing managers’ index for construction by  the Chartered Institute of Purchasing and Supply. It is rising at its fastest rate since before the financial crisis threw the UK into recession and confidence is growing as signs suggest there will be a rise in business activity over the next year.

Employment / Recruitment

Masses of skilled workers are leaving the UK to work overseas as a result of falling job prospects and high prices, according to a recent poll. The poll of 5,600 Brit emigrants working overseas revealed that there is a large chunk (almost 40%) are working as skilled technicians and that another 23% can be categorised as self-employed entrepreneurs. Around 321,000 left Britain to live abroad last year according to recent data from the ONS. Australia was said to be at the top of the list of destinations for Brits leaving the country. Apparently 40% of the people polled admitted they left the UK mainly due to better job prospects overseas which does not bode well for the future as the UK labour market which is already seeing a serious skills shortage across a number of key sectors including the technology and healthcare professions.

Personal Finance

The cost of care has forced over one million families to have to sell their homes in just five years according to new figures, carried out by the polling company ICM for the insurer NFU Mutual. This comes as a major shock, and is far higher than the government estimates have suggested. Charities and pension experts have pointed out that it is evidence of one of the first real attempts to measure the scale of Britain’s funding crisis. Many people think it shows the Government’s long awaited over haul of the social care system in England including the introduction of a cap on bills did not make much progress in addressing the issues facing thousands of families. care minister, Norman Lamb suggested that Britain had become a “neglectful society” and that people are allowing the elderly to spend their years in isolation due to the way that families are dispersed. While the state must play a vital role in supporting people in old age, it was all said that people must step up and provide basic kindness and companionship. Jeremy Hunt’s reaction was also one of concern and he stressed that it highlighted the need for reforms. The Government’s ambitious cap on care costs is thought to be a step in the right direction and will make England one of the first countries where people do not end up having to sell their homes to pay for care.  The results come after a separate study which found that two million people or a quarter of retired home owners are planning to sell their homes to fund their old age.

Property

One in five families rents privately in the UK, which equates to 1.2 million households including single parents according to Shelter housing charity – that’s up from just one million two years ago. And the same time home ownership is at 64% – the lowest figure for nearly 30 years. (In 2001 it was 70%). Furthermore, the English Housing Survey shows the pace of renting is increasing at an alarming rate. People are concerned that new Government schemes such as Help to Buy will push prices up beyond so that they are out of reach for the vast proportion of potential buyers and that only those with the help from the Bank of Mum and Dad or from their grandparents will be able to get a foot on the property ladder. There are fears that creating taxpayer-subsidised hand outs to first time buyers will only boost prices which will result in a housing bubble, and that it will help a select few access the housing market but will make housing even more unaffordable for most people. It has been revealed that almost a third of property purchases would not have taken place without help from the buyers family. The underlying fact is that while house prices have risen dramatically, wages have not kept up at the same rate. Due to the financial crisis, due to pay freezes during this period wages are stagnant. And people are finding it impossible to save up for a huge deposit in order to get a mortgage.

Newspaper Headlines- Saturday 21st July

Main Business

Bank of England told of Libor concerns in 2008.  Memos from 2008 have shown that senior officials at BoE were informed that banks were probably submitting dishonest estimates of their borrowing costs. This somewhat contradicts what Paul Tucker said at the select committee hearing where he claimed he was only made aware of the possibility once formal investigations started. Independent, FT, Guardian

 

Main PF

Retail bonds are turning into one of the savings success stories for the summer. In the present climate of ultra-low interest rates, retail bond yields of 5.5% or more look attractive than ever before. Times

 

Main Recruitment

 

G4S Fiasco puts focus on labour market trends – Evidence by The Work Foundation does not show that casual workers will displace full timers in the long term. Evidence also suggests that four fifths of workers remain on permanent contracts which is little change from 30 years ago. The only difference is there is more part time workers in the market. FT

 Main Property

With the housing market crash in 2008 showing no signs of climbing again, buying a home is no longer a road to easy wealth but renting can free finances. Independent

The Number of Renters in Severe Arrears Tops 100,000

  • 100,000 renters now in severe arrears as rents rise and real terms wages fall
  •  Severe arrears cases up by 8% on a quarterly basis
  • Number of court orders to evict tenants up 6% on last quarter

The number of tenants in severe financial difficulty climbed by 8% in the second quarter of 2012, with over 7,000 more tenants over two months in arrears than in the first quarter of 2012, according to the latest Tenant Arrears Tracker by Templeton LPA, the specialist practice of LPA Receivers and part of the LSL Property Services plc Group.

In the second quarter of 2012, an average of 100,400 tenants in England and Wales were in severe arrears – an increase of 24% compared to a year ago. This is the highest number on Templeton LPA’s records, which extend back to 2008.

The increase also represented a proportional rise. In the second quarter of 2012, tenancies in severe arrears represented 2.6% of all tenancies in the private rented sector inEnglandandWales– an increase from 2.4% in the previous quarter.

Paul Jardine, director and receiver at Templeton LPA comments: “As the private rented sector grows, the number of tenants in dire financial straits is steadily climbing. Falling wages in real terms have been compounded by rising rents, pushing a greater number of rented households over the edge financially. With the instability in the labour market and wider economy, and public sector cuts still to come, the section of renters in multiple months of arrears is likely to continue its expansion.”

Although the number of severe arrears cases (tenants with arrears of more than two months) continues to climb, the general level of tenant arrears across the entire market has improved, with 8.9% of all rent in the private rented sector late or unpaid by the end of May, a decrease from 9.9% at the end of April.

Paul Jardine continues: “The wider rental market currently includes a much higher proportion of financially comfortable tenants who would have been buyers before the initial credit crunch, reining in general arrears across the market as a whole. However, this will be no comfort to the growing minority of tenants several months behind with their monthly rent cheques. As mortgage finance remains difficult to secure, the contrast between better-off frustrated buyers stuck in rented accommodation and renters in severe arrears will grow starker yet, and the number of tenant evictions is likely to increase.”

The increased number of tenants in severe arrears has driven a rise in the number of tenants being evicted through court orders. In the first quarter of the year, 26,060 tenants faced eviction notices – 6% more than in the previous quarter, and 5% more than in the same period of 2011.

The growing number of severe tenant arrears cases and evictions has yet to filter through into increasing buy-to-let mortgage arrears. In Q1 2012, the number of buy-to-let mortgages more than three months in arrears fell by 4% compared to the previous quarter, representing an annual decline of 19%. However, at 23,700, there are still almost double as many buy-to-let mortgages in severe arrears than four years ago

Paul Jardine continues: “The rising level of severe tenant arrears has yet to filter through into buy-to-let arrears. In fact, buy-to-let mortgage arrears have been steadily falling since the Bank of England reduced interest rates in 2009. Landlords have been enjoying historically low mortgage payments, which has cushioned the blow of late rent payments, and many have met the lower mortgage costs with money set aside from slush funds, or rental guarantee schemes. However by necessity an increased number of landlords have had to resort to court orders to remove tenants in long-term arrears, and this has increased. While landlords’ mortgage arrears are unlikely to rocket up until the interest rates are hiked, rising tenant arrears and an unsteady labour market will provide upwards pressure.”

David Brown, commercial director of LSL Property Services comments: “The average landlord hasn’t seen anywhere near the level of capital gains they did a couple of years ago, and the onus is firmly on rental income as the main driver for annual returns. In this environment, late or non payment of rent is even more of an issue for investors, and it’s not uncommon to see landlords be flexible on the rent at the outset of a tenancy to secure renter with the strongest evidence of sound finances and affordability.”

Rents Rise in May as London Hits New High

  • Rents rose for a second consecutive month, increasing by 0.4% on a monthly basis
  • Londonrents reach record high of £1,038 pcm, increasing by 0.6% in May
  • Tenant arrears fell back from April, with 8.9% of all rent late or unpaid

Rents rose for a second consecutive month in May, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In May, the average rent in England and Wales rose by 0.4% to £712 per month, with rents returning to their January level. Despite the monthly rise, the rate of annual increase slowed, with rents 2.3% higher than a year ago, compared to 2.4% in April.On a monthly basis, rents rose in the majority of the regions, with the highest rises in the North West and East Midlands, where they rose 1.7% and 1% respectively. Compared to April, rents declined in four regions, with the largest falls in the North East, where they fell by 1%, and the West Midlands, where they decreased by 0.9%.

Rents rose annually in all but three regions, with rents falling by 1.5% in the East Midlands, 0.7% in Wales and 0.3% in the North East. Rents rose the fastest in London and the South East, where they increased by 4.2% and 3.1% respectively.

David Newnes, director of LSL Property Services comments: “The end of spring has brought with it renewed activity in the rental market, and rents have returned to the level seen before the impact of the stamp duty deadline rush by first-time buyers. The reality is that thousands of frustrated buyers are still financially trapped between a rock and a hard place. Historically high rents and rock-bottom savings rates are hampering attempts to save for the larger deposits banks now require – not to mention meeting the cost of the reinstated stamp duty tax. In turn, fewer tenants are able to leave the sector, and the strong tenant competition is pushing up rents as a result, making saving for a deposit harder still.

“However, it’s not just involuntary renters that are adding to demand. Given the current concerns over the economy and labour market, the flexibility of renting is proving attractive for those adopting a wait-and-see approach to house purchase. Given this appetite for rental accommodation, rents are unlikely to see sustained declines any time soon.”

Following their annual increase,London’s average rents rose to their highest on record, with the 0.6% monthly increase in May meaning the average rent in the month was £1,038, surpassing the previous high of £1,033 in November.

David Newnes adds: “With London buyers needing to supply the largest cash deposits in the country, and the capital’s economy continuing to attract young professionals from around the UK, the rental sector is under greater strain than elsewhere in the country. This underlying demand is likely to be augmented over the coming weeks as tenants bring forward moves to avoid the disruption of the Olympics.”

Steadying property prices in May led the average total annual return on a rental property to rise to 4.8%, up from 3.7% in April. This represents an average return of £7,912, with rental income of £7,666 and a capital gain of £245.  If property prices maintain the same trend as the last three months, an average investor in Englandand Walescould expect to make a total annual return of 5.2% per property over the next 12 months – equivalent to £8,522 per property. Despite the improvement in rental property prices, the average yield on a rental property remained steady at 5.2%.

Newnes comments: “The resilience of property prices in May helped boost the average returns landlords are likely to see, but it is the lucrative rental incomes that are drawing investment to the sector. With buy-to-let mortgage lending continuing to expand, and tenant demand unlikely to diminish, the private rented sector is only going to increase in size as the year progresses.”

Overall rental arrears improved after a seasonal increase in April, with 8.9% of all rent late or unpaid at the end of the month, down from 9.9% in March. In total, unpaid rent in May amounted to £275m, down from £306m in the previous month.

Newnes concludes: “Rental arrears took a turn for the better in May, following a seasonal spike triggered by Easter holiday spending. In fact, while a minority of tenants may be facing severe financial difficulties, the general tenant population has broadly coped well with high rents and the rising cost of living so far this year.  However, with the economy struggling and the labour market far from flourishing, households will remain under financial pressure, and it is crucial landlords are not caught flat-footed by a deterioration in tenant finances.”

Methodology

The index is based on analysis of approximately 18,000 properties across England and Wales. Rental values refer to the actual values achieved for each property when let. Yield figures are unadjusted, and do not take account of void periods or arrears. Annual returns are based on annual rental property price inflation and void-adjusted yield at the point of purchase. These figures are subject to revision as more data becomes available.

This buy-to-Let index has been prepared by The Wriglesworth Consultancy for LSL Property Services.  It has been compiled using information extracted from LSL’s management information.  The copyright and all other intellectual property rights in the buy-to-let index belong to LSL.  Reproduction in whole or part is not permitted unless an acknowledgement to LSL as the source is included.  No modification is permitted without LSL’s prior written consent.

Whilst care is taken in the compilation of the buy-to-let index, no representation or assurances are made as to its accuracy or completeness. LSL reserves the right to vary the methodology and to edit or discontinue the buy-to-let index in whole or in part at anytime.

UK Renters Face Highest Costs In Western Europe

  • UK flatsharers face highest rents in West Europe, 5% higher than France, the second most expensive
  • UK least affordable, with 15% of gross earnings spent on rent, compared to 12% in Spain
  • London is the priciest city, with an average monthly rent of £520, ahead of Paris and Milan
  • Glasgow and Birmingham more expensive than Madrid or Barcelona

The UK is the most expensive country in Western Europe for flatsharers, according to flatshare website Easyroommate.co.uk.

With flatmates paying £360 per month on average, UK flatsharers pay at least 5% more per month than their European counterparts, according to Easyroommate’s analysis of nearly 33,000 UK, French, Italian and Spanish rental properties.

The average rent in the UK is 56% higher than that in Spain, where the average room costs £230 per month a difference of £129 per month. France is the second most expensive country for renters with an average room rent of £342 per month, followed by Italy, where rents are £282 pcm, 22% cheaper than in the UK.

Jonathan Moore, director of Easyroommate.co.uk, comments: “Flatsharers in the UK face much higher bills at the end of the month than their European counterparts. The combination of unaffordably high house prices with the ongoing lending crunch in the UK is leaving hundreds of thousands of frustrated buyers dependent on rental accommodation. With nearly 100,000 renters in the last year alone moving into the flatshare sector, growing demand for cheaper accommodation options is driving up the cost flatsharing Brits face. The steady strengthening of the pound against the Euro in the last six months has played a role, but it is not the main driving force behind the gulf.”

         

Table 1: Average Rents and Affordability per Country

 

Country

Average Rents
(£ pcm)

Affordability (Rent as a % of Gross Income)[i]

UK

360

15%

France

342

14%

Italy

282

14%

Spain

231

12%

The UK also emerged as the least affordable country for flatsharers, with a higher gross salary more than offset by higher rents. As a result, UK flatsharers must dedicate 15% of their gross salary to paying the rent each month. France and Italy were the next most unaffordable, with rents costing 14% of salaries, while renters in Spain must spend just 12% of their gross earnings on the cost of renting.

Jonathan Moore, director of Easyroommate.co.uk, continues: “Although UK renters may be taking home bigger pay cheques than those in Spain and Italy, a far bigger chunk of these earnings must be put towards rent each month. With rents rising in the UK at nearly double the rate of the average salary, this is only going to get worse. In contrast, although Spanish workers may be taking home much less than the average in the Eurozone, this is softened by rock-bottom rents.” 

 CITY ANALYSIS

 In a survey of the biggest five cities in each of these countries, London emerged as the single most expensive city, with average monthly rents of £520 per month – 21% higher than Paris, the next most expensive city. With average room rents of £419 per month, Milan was the third most expensive city for flatsharers.

UK and French cities dominate the most expensive, with eight cities in the ten most expensive. In fact, no British or French cities feature outside the top twelve.  In contrast, Spanish cities feature heavily amongst the least expensive, with Valencia, Seville and Zaragoza featuring in the cheapest five. Zaragoza is the joint cheapest city, with monthly rents averaging just £201 per month.

Table 2: Most Expensive Cities For Renting In Western Europe

  City

Average Rents (£ pcm)

London

520

Paris

428

Milan

419

Nice

385

Rome

385

Glasgow

375

Marseille

342

Lyon

326

Birmingham

325

Lille

321

Madrid

304

Leeds

301

Liverpool

300

Barcelona

299

Turin

291

Napoli

257

Sevilla

222

Valencia

205

Palermo

201

Zaragoza

201

Jonathan Moore continues: “Paris and Milan may well see strong demand from renters looking to live in the fashion capitals of Europe, but it is London that is in a league of its own.  UK flatsharers are paying a premium of 44% to live in the capital, where the mismatch between the demand for accommodation and its supply is greatest. However, the real surprise was the performance of Birmingham and Glasgow, where it is now more expensive to rent a room than in Madrid or Barcelona.”