Friday, November 15, 2013
Renting is now more affordable than buying in most London Boroughs
Renting vs buying in London: Increases in house prices over the past year have made renting significantly cheaper than buying in the majority of Inner London Boroughs and a growing number of Outer Boroughs too. Currently, there are a total of 23 Boroughs where the monthly cost of renting is at least 10% cheaper than buying, up from 19 Boroughs in 2012. Between Q4 2012 and Q4 2013 Ealing, Southwark, Lewisham and Greenwich joined the list of London Boroughs where it is 10% plus more affordable to rent than buy.
Commenting on the findings that renting is more affordable than buying in most London Boroughs, Nick Dunning, Group Commercial Director at Countrywide plc, said:
“The average tenant in London is now £4,200 (16%) a year better off than a buyer who is able to put down a relatively healthy 10% deposit to purchase a home. This represents an additional saving of £600 over the past 12 months. In London, the cost of renting relative to buying has fallen substantially as house prices have increased, particularly in the most expensive Inner London Boroughs. Renting is more affordable than buying in all 12 Inner London Boroughs and all but one of the 21 Outer London Boroughs, where renting is on average £2,600 per year less.”
Rents: Average monthly rents increased by 1.8% in England, however, the performance of regional rental markets varies significantly. A 5.1% year-on-year increase in rents in Greater London suggests that demand is perhaps driven by new job creation and an increase in tenants looking to pay lower rents. The average growth in wages for private sector employees has disproportionately been enjoyed by Londoners. In the North and the Midlands where a larger proportion of workers are employed in the public sector and where wages have fallen, rental growth has been constrained.
Yields: While the average yield has decreased marginally from 6.2% to 6.1% over the year, the largest decreases have been in the South East and the South West where increases in house prices have not been matched by increases in rents. Yields in London and the North have remained stable, with both rents and house prices increasing in London but remaining stable or declining in real terms in the North.
Types of tenancy and tenancy length: In the East Midlands and the East of England, 33% of all new tenancies include children, up from 30% a year earlier. In London, the figure rose from 26% to 29% over the year, a marked increase on the levels reported in both the 2001 and 1991 Census, where just 18% of tenancies in the capital contained children. Areas across the South and East of England have seen some of the largest increases in tenancy lengths. In London and the South East, the average tenancy length increased by 5.9% which equates to an additional month.
Commenting on the Index, Nick Dunning said:
“Whilst outside London demand for rental accommodation has increased 5% above the rate of supply, increases in rents have closely tracked wage growth. Maintaining this link has meant that arrears have fallen to record low levels. Over the past 12 months, rent arrears in the South East and the South West have fallen by a fifth.
“However, in London the combination of an increase in new private sector jobs and rapid levels of inward migration both national and international have continued to drive the sale and rental markets. With house price growth outstripping the increase in average monthly rents across London, renting is more affordable than buying in the majority of London Boroughs. Only in Barking and Dagenham does renting remain less affordable.
“The cost of buying increased more quickly than the cost of renting in all but three London Boroughs making renting more financially attractive to tenants. Between 2012 and 2013 it was only in Tower Hamlets, Newham and Waltham Forest where the financial advantage of renting diminished. All three are amongst the fastest growing Boroughs in terms of population which, combined with institutional investment in the private rented sector post Olympics, has served to drive rents rather than house prices.”
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