Buying is STILL cheaper than renting – even with higher mortgage rates

Buying a property with a 10 per cent deposit is still cheaper than renting despite higher mortgage rates, new data has shown.

As of December 2023, buying with a 10 per cent deposit was £9 cheaper per month than renting on average, according to analysis by the estate agent Hamptons shared exclusively with This is Money.

It represents the first time since May last year that an average single renter is worse off each month than the average single first-time buyer – even with a mortgage covering 90 per cent of a property’s value. 

Renting vs buying: Even when purchasing with a 10% deposit, owning with a mortgage will now typically work out cheaper than renting

Earlier this year, when average two-year fixed rate mortgages reached a high of 6.86 per cent, and average five-year fixed rate reached a high of 6.37 per cent, renting was the cheaper option.

For example, in July and August when mortgage rates peaked, on average, renters were saving £154 a month compared to those buying with a 10 per cent deposit.

The gap was even wider towards the end of 2022, when mortgage rates soared in the aftermath of the Liz Truss mini-Budget fiasco.

In October 2022, the average renter was £232 better off than the average first-time buyer purchasing with a 10 per cent deposit. 

Hamptons analysis is based on a typical single person on the average income, choosing to buy or rent the average home.

The gap between the cost of renting and buying has probably widened further over the course of this month, given that more than 50 lenders have cut mortgage rates since the start of the year.

The average five-year fix has fallen from 5.56 to 5.18 per cent, according to Moneyfacts, while the average two-year fix fell from 5.94 to 5.55 per cent.

The lowest five-year fixed mortgage rate available to someone buying with a 10 per cent deposit is now 4.38 per cent.

On a £200,000 mortgage being repaid over 30 years, that would mean paying £999 a month for the first five years.

Meanwhile, this month the average asking rent for new properties coming onto the market reached a record high of £1,280 a month for those outside of London, according to Rightmove.

It is a similar picture in London as the rest of the country, with rents in the capital hitting a new record of £2,631. 

 > Need a new mortgage? Find today’s best rates with our search tool

Heading down: Mortgage rates have been falling over the past few months with markets now forecasting the Bank of England base rate will begin being cut later this year

While saving up for a deposit is often the biggest barrier to home ownership, this data proves that for those that can afford to, buying will likely make financial sense. 

Aneisha Beveridge, head of research at Hamptons says: ‘Last month became the first time in a while that it became cheaper to buy than rent with a 10 per cent deposit.

‘For much of last year, affordability conditions were particularly tough for first-time buyers. Small house price falls were more than offset by higher mortgage rates.

‘The outlook in 2024 should be better. For those with a 10 per cent deposit, mortgage rates now begin with a 4 rather than a 6. This will enable first-time buyers to borrow more. 

‘While for most of last year it was cheaper for a first-time buyer with a 10 per cent deposit to rent than buy, these sums are set to change early in 2024 due to lower mortgage rates.’

Another record: Average asking rents reach  £1,280 a month outside London, says Rightmove

For those first time buyers able to get on the ladder with a bigger deposit, buying will likely make even more financial sense. 

The average deposit put down by first-time buyers in 2023 was around 25 per cent, according to UK Finance.

Based on the average house price of £285,000 in November 2023, according to the Office for National Statistics, that would amount to £71,250.  

According to Hamptons’ analysis, for someone with a 25 per cent deposit, the cost of buying has never quite surpassed the cost of renting – even when mortgage rates peaked in late 2022 and in summer 2023.

At its closest, renting remained £33 per month more expensive than buying.

By December 2023, the gap had widened to £302 per month, a product of falling rates and rising rents. 

This means the gap between the cost of renting and buying is closer to where it was in 2021, back when mortgage rates were between 1.5 per cent and 2 per cent and rents were also roughly 30 per cent lower.

However, while it’s easy to compare average mortgage costs with average rents, there are other costs associated with owning a home that can level things out, or even tip things in the favour of renters.

This includes home insurance, unexpected repairs such as fixing a boiler, and any decorating or improvement work. 

According to research by Aldermore Bank the average first-time buyer should expect to pay £2,170 in additional expenses during their first year of home ownership.

It’s also worth pointing out that the typical costs of buying and renting will be different depending on where people live. 

Jeremy Leaf, north London estate agent and a former Rics residential chairman, says: ‘Being a first-time buyer could be better at the moment than it has been for a while, depending on what you are paying, where in the country you are buying and what you are looking for. 

‘If you have been paying very high rent, as mortgage rates start to come down, you may be better off becoming a homeowner if you can. 

‘Much depends on your own individual circumstances so you need to run the numbers and seek advice from a whole-of-market broker. 

‘It is not just the purchase price to consider but running costs, service charge, if relevant, and what needs to be done to the property.’