Buying a property still remains 13% more cost effective than renting but it is 3.2% more expensive than this time last year, the research from property search website Zoopla shows.
Renting an average two bedroom flat is £961 a year more expensive than owning and York is the most cost effective to buy whiles Plymouth is the best to rent.
A year ago renting in the UK was £993 per year on average more expensive than servicing a mortgage, but this gap has now come down by 3.2% to £961 today. As a result, the proportion of towns and cities across the UK where it is cheaper to buy than rent has fallen from 90% to 86% over the past twelve months.
The main cause of the narrowing gap has been that house prices have climbed at a faster pace over the past year than rents with the cost of renting a two bedroom flat across Britain is now £84 or 1.1% more expensive on average than last year, whereas the cost of servicing an interest only mortgage on a typical two bedroom flat has risen £120 or 1.7% on average.
Despite the narrowing gap, it is still 13% cheaper to own than to rent. The average rental payment on a typical two bedroom flat is £8,006 per year, compared to £7,045 per year to service an interest-only mortgage at a 5% rate.
Using a 90% LTV interest-only mortgage at a typical best buy rate of 4.39%, the rental premium is even higher with the average mortgage at £126,817 and interest of £464 per month, saving an owner £2,439 a year, not including the cost of deposit.
Weaker house price growth in the north has meant that northern towns dominate the list of places where it is cheaper to buy than rent with York topping the list and where tenants pay a £3,326 (42%) annual premium over owners.
Higher property prices in the south have led to a number of places where it is cheaper to rent instead of buying with Plymouth topping the list and where tenants in the seaside town pay £845 (15%) per year less than owners on average. Despite the high rents in London, property price rises over the past year in the capital have now made renting 6% more cost effective than buying.
‘Buying remains significantly more cost effective than renting, but the gap is closing. With increased mortgage availability buyer demand is rising, especially amongst first time buyers, whilst rental demand is falling so house prices are generally rising faster than average rents, although it is clear that large regional differences still exist,’ said Lawrence Hall of Zoopla.
After York the next best locations where buying beats renting are Derby, Coventry, Hull and Bradford. When it comes to renting after Plymouth the top spots are Swansea, Bournemouth, London and Stockport.