Should London renters think about buying?

Should London renters think about buying? [Image: MarioGuti via iStock]

London has been named as the world’s second most expensive city to rent a home in, in relation to salaries. With only San Francisco’s rents taking up a higher proportion of people’s salaries, the news will likely be inspiring more people to consider buying their own homes rather than renting.

This is emphasised by the fact that rental price growth has actually dropped by 4.7 per cent in London. This means that despite prices falling, London is still one of the most expensive cities to live in.

According to Barratt Homes, rent now makes up a total of 45 per cent of salaries in London, while living in San Francisco will cost 47 per cent of renters’ salaries on average.

A spokesperson for the company said: “Renting must remain a viable option for those looking to move home, but residents might want to consider a buying market that offers plenty of incentives for first timers.”

There are a number of reasons for London renters to consider buying a property rather than continuing to rent.

In many cases, the most significant reason will be the cost savings. When rental prices are so high, most mortgage costs can seem low in comparison, especially when taking into account the low rates that are on offer at present.

According to many property analysts, mortgage rates will soon rise, which makes it more important that potential first-time buyers think about making their purchases in the near future.

Although the government recently put an end to the section of the Help to Buy scheme that meant buyers had to lay down just five per cent of the property’s value as a deposit, there are still ways that first timers can get help to take the first step onto the property ladder.

The London Help to Buy scheme helps those who want to buy in one of the most expensive areas in the world. The government has increased the Help to Buy: Equity Loan scheme’s upper loan limit from 20 per cent to 40 per cent for buyers in all London boroughs. These buyers are also given the chance to pay the five per cent deposit.

It also makes sense for new buyers to lock in a fixed rate mortgage at present because the rate of inflation is set to rise above the Bank of England’s (BoE) target of two per cent by April, according to the Office for Budget Responsibility. This will lead to a higher cost of living, which will then likely pressure the BoE to raise its interest rate from the current record low of 0.25 per cent.

Renters in London should therefore think carefully about whether they want to continue paying almost half of their salaries on their homes or whether they can take advantage of low mortgage rates to buy their own properties.