For the first time in almost a decade, it is now cheaper for a typical would-be first-time buyer to rent rather than buy.
Although rents are at historically high levels, soaring mortgage interest rates mean it is now an average of £412 a month – or 26% – cheaper to rent a home than buy it. A buyer with a 10% deposit and a 25-year loan term now faces average monthly mortgage repayments of £1,603, compared with a typical outlay of £1,191 a month to rent the same home. A year ago, it was an average of £150 a month cheaper for a typical first-time buyer in Great Britain to get on the ladder than it was to remain a tenant.
In October 2022, in the immediate aftermath of the mini-budget, mortgage rates became so high that even the interest element of a repayment mortgage alone became more expensive than the potential rent – by an average of £123 a month. Loan rates have begun to drift down and may drop further as this year progresses, reducing the difference between mortgage interest and rent (it currently stands at £49). However, it is likely that this gap will take much longer to close than it did to open.
The size of the deposit a first-time buyer is able to put down has a big bearing on the economics of whether they chose to buy or rent. As recently as February 2022, it was cheaper to buy a home with no deposit – if you could get a loan agreed on those terms – than it was to pay rent on the same home. However, by October, buyers typically needed a hefty 33% deposit for the monthly mortgage payments to match the cost of the rent. The figure has dropped slightly, with buyers now needing a 31% deposit, but it still remains around the highest level since we started recording the data in November 2013. This will price many first-time buyers out of the market because they typically have much smaller deposits.
It’s typically cheaper to rent in southern England and London due to the effect of high property prices on affordability and mortgage costs, and yields are lowest. Kensington and Chelsea, in central London, is the most expensive location to buy a home relative to renting – there, it is an average of £5,614 a month more expensive to purchase, while a 59% deposit would be required to make the monthly bills the same. In Waverley, Surrey, it is an average of £1,451 a month cheaper to rent and a buyer would need a 54% deposit to make mortgage payments cost the same as rent.
Nevertheless, there are still 20 local authorities in England and Wales in which it is still cheaper for a would-be first-time buyer to purchase than rent. These areas have lower house prices and include Nottingham, where it is an average of £155 a month cheaper to buy; Manchester (£92 cheaper); Liverpool (£77); and Newcastle (£71). The calculation is most marginal in Blaenau Gwent, where it is only £3 a month cheaper to buy than rent; and Blackpool and Middlesbrough, where it is only £5 a month cheaper to buy. Typically, these locations have some of the highest rental yields in the country, meaning tenants are paying a higher proportion of the property’s value in rent. If renting isn’t cheaper than buying in these places today, it likely never will be.