Is Renting Cheaper than Buying a Property in the UK?

More people seem to be renting properties than ever before in the UK, even as the property market begins to slump after a bumper three years of success. The relative success of sellers in the market is at odds with the wider understanding that homes are simply too expensive nowadays – but what is true? Is renting cheaper than buying a property in the UK? And in what ways might it have become preferable to buying even to prospective homeowners?

The Role of Inflation in Property Values

The rate of inflation has had a relatively minimal impact on the value of property in the UK; that is, other factors, from buyer demand to shortages of sellers, have been much more impactful in driving property value rises recorded between 2020 and 2022. However, a different component of the economy did have a significant impact on affordability for many existing and prospective households. 

That component would be interest rates, which were increased in record increments by the Bank of England to mitigate the impacts of inflation and inflationary policy on the economy as a whole. The outcome of these unprecedented hikes in interest was a spike in the mortgage interest rates, which saw mortgage repayments skyrocket even as property values began to fall. 

Generation Rent 

Recent shifts in the affordability of mortgages come after an extended period of rising property values, which have already fed into the phenomenon known as ‘generation rent’. Generally speaking, wage inflation has not kept up with inflation in the value of other goods and services; in 2022, house prices reached an average of 9.1 times average earnings, while the same house price to income ratio in 1997 was as low as 3.5. 

The result is a generation of people unable to meet the higher bar of eligibility for a mortgage, and an increased number of people relying on rental properties for their living situation. This lends credence to wider suggestions that renting is a cheaper solution at present than buying a property. 

Making Rental Work for You 

Even if renting is not an ideal medium-term outcome for you as a prospective buyer, there are ways in which doing so can be made beneficial and even cheaper. One preventative measure you should take is to arrange renters insurance on any property you do choose to sign a tenancy agreement for. This protects you from unexpected and last-minute costs relating to the rental property and ensures all the money you put toward your eventual home purchase remains there. 

Renting is, by its own nature, a much more agile way of living than buying a property. Tenancy agreements are rarely longer than 12 months in length before rolling contracts come into play. This makes it much easier for people to move around or try different properties, whether for work or to experience a new city. This can also be a good way to figure out your best next steps for buying a property when markets eventually cool.