The cost of renting versus buying a home in Great Britain has reached a point of equilibrium, according to our latest research. With mortgage rates hovering around 5%, the average monthly mortgage payment on a 90% loan-to-value (LTV) mortgage is now equivalent to the average rental payment. The average monthly mortgage payment (£1,328) is slightly cheaper than the average rental payment (£1,356). This time two years ago, renting was £48 per month cheaper than buying.
Historically, buying has often been the more economical choice, but recent economic changes have altered this landscape. Our analysis reveals that since January 1987, there have only been three occasions when renting has been cheaper than buying. Each of these instances was triggered by spiralling mortgage rates that pushed up the cost of buying, rather than by falling rents.
Firstly, in the early 1990s, when mortgage rates hit 15%, it pushed the average monthly mortgage payment for someone with a 10% deposit up to £649, nearly double the cost of renting at £358. As interest rates fell, the trend normalised and buying became cheaper throughout the rest of the 1990s and most of the 2000s.
It wasn’t until around 2007 when banks raised rates on small deposit mortgages that the balance swung back in favour of renting again and remained that way until 2010.
The third instance when renting became cheaper than buying occurred just after the ‘mini budget’ (back in 2022), when mortgage rates rose steeply. In October 2022, the typical first-time buyer could save an average of £2,847 a year by renting.
The North-South Divide in Housing Costs
Today, we're witnessing a nuanced picture across the country. In all four southern regions of England, it remains cheaper to rent a home than to buy it on a monthly basis. Conversely, in regions further north, buying still edges out renting in terms of affordability.
This geographical disparity reflects how the same mortgage rate is felt differently across the country. In London, for instance, renting has been more affordable than buying since July 2022, when mortgage rates stood at 3.69%. Currently, the average Londoner could save £115 per month by choosing to rent rather than buy.
The situation is markedly different in northern regions. In the North East, for example, the monthly cost of renting hasn't exceeded the cost of buying since July 2011. This contrast highlights how the same mortgage rate can have vastly different effects across the country.
Our research indicates that the mortgage rate required to equalise the monthly cost of renting and buying tends to be lower across the south of the country than further north. While Londoners with a 10% deposit require rates of around 4.6% to equalise the cost of renting and buying, further north, mortgage rates could rise above 6.0% to make buying as expensive as renting.
The Impact of Interest Rates on Buying Costs
Higher mortgage rates that push up the cost of buying relative to renting are a reflection of the extra amount buyers pay in interest. This effect is amplified when people buy more expensive homes, such as in the South of England.
At the typical mortgage rate currently available to a first-time buyer with a 10% deposit (5.11% spread over a 30-year term), it takes 16.5 years for the repayment to outweigh the interest element of their monthly mortgage payment. This represents a significant portion of the loan term dedicated to paying off interest rather than building equity.
To put this into perspective, when interest rates peaked at 6.57% in August 2023, it would have taken an average of 19.5 years for mortgage repayments to outweigh mortgage interest. This means that 86% of the first payment towards a mortgage taken out in August 2023 went to cover the interest being charged on the loan.
Conversely, back in March 2022 when average rates were just 2.38%, mortgage repayments would have outweighed mortgage interest after just one year, with interest accounting for just 49% of a first-time buyer's initial mortgage payment. The difference highlights the profound impact that interest rates have on the long-term cost of homeownership.
Rental Market Trends
While the cost of buying has been fluctuating with mortgage rates, the rental market has been experiencing its own trends. In the 12 months to March 2025, the cost of a newly agreed tenancy in Great Britain rose by 1.5% to £1,356 per calendar month (pcm). This marks the third consecutive month when annual rental growth has been running below 2% and the fifth consecutive month when rental growth across the nation has been below general inflation (CPI).
Meanwhile, the average cost of renewing a tenancy grew by 4.2% nationally in the 12 months to March, bringing the average cost to £1,250 pcm, £106 a month less than a tenant moving into a new home. This means the rate of increase for renewed tenancies has been higher than that of new lets in every month since September 2023.
London continues to be a drag on rental growth, with rents down 1.7% on the same time last year. This puts the average cost of a newly let home in the capital at £2,255 pcm, the lowest level in almost two years. Slowing rental growth in the capital has been driven by falls in Inner London, where prices fell by 4.4% year-on-year. Meanwhile, Outer London rents grew by 1.2%.
Looking Ahead
The current equilibrium between renting and buying costs is a result of complex economic factors, including inflation, interest rates, and regional variations in property values and rents. But relative to the cost of paying a mortgage, rents tend to be much less volatile.
Typically, rents are tightly tied to both wages and inflation. This means that while they rarely fall, they also tend to rise more slowly unless general inflation escapes its 2% target. When this happens, rents are often driven up by the higher costs faced by landlords, like we saw in 2022-2023, ranging from higher mortgage payments to bigger bills from tradesmen.
Should central banks perceive an emerging trade war as a growing threat to economic growth, it could create room for faster rate cuts. This could translate into falling mortgage rates, potentially cutting the cost of both buying and potentially renting too. Given these costs form a large part of official inflation statistics, this could put material downward pressure on the headline inflation figure.
