Britain’s renting and home-buying costs have equalised

The cost of renting and purchasing a home have reached parity across Great Britain to meet with historical trends, research reveals.

Hamptons says that with mortgage rates hovering around 5%, the average monthly mortgage payment for a first-time buyer with a 10% deposit stands at £1,328.

That’s marginally below the average rent of £1,356.

Historically, owning a home has been more affordable than renting for most of the past four decades, the agency says.

Rents are less volatile

Hampton’s head of research, Aneisha Beveridge, said: “Since the 1980s, it’s typically taken an economic shock for renting to drop materially below the cost of buying.

“When this happens, it’s almost always driven by the cost of buying rising rapidly, pushed up by mortgage rates jumping for those with smaller deposits who are perceived to be riskier borrowers when prices may fall.

“But we are now seeing the impact of the inflation shock unwinding.”

She added: “Relative to the cost of paying a mortgage, rents tend to be much less volatile.

“Typically, they’re 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.”

Landlord costs affect rents

Since January 1987, renting has only been cheaper than buying on three occasions, each triggered by sharp spikes in mortgage rates.

The early 1990s saw rates soar to 15%, inflating monthly mortgage payments to £649 — nearly double the rental cost of £358.

A similar trend emerged in 2007 when banks tightened lending on low-deposit mortgages, and again in 2022.

That came after the economic turbulence of the ‘mini-Budget’, when renting became £48 cheaper per month.

Ms Beveridge also says that rents are often driven up by higher landlord costs faced by landlords – as was seen in 2022-2023 – ranging from higher mortgage payments to bigger bills from tradesmen.

She adds: “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.”

Renting cheaper than buying

Hamptons says there is a clear north-south divide with the four southern regions, including London, renting remains more cost-effective than buying.

In the capital, tenants save around £115 monthly compared to homeowners – a trend unbroken since July 2022 when mortgage rates were 3.69%.

Conversely, northern regions, such as the North East, find buying more economical, a pattern consistent since July 2011.

The mortgage rate needed to balance renting and buying costs is lower in the south – around 4.6% in London – compared to more than 6% in northern areas.

Rents show modest rises

Hamptons also says that rent prices have seen modest increases, with newly agreed tenancies rising by 1.5% to £1,356 per month in the year to March.

This marks the third consecutive month of sub-2% annual growth, lagging behind general inflation.

In contrast, tenancy renewals have risen faster, up 4.2% to £1,250 monthly.

London, however, bucks the trend, with rents dropping 1.7% to £2,255, driven by a 4.4% decline in inner London, while outer London saw a slight 1.2% increase.

Mortgage rates, currently at 5.11% for a 30-year term with a 10% deposit, mean it takes 16.5 years for principal repayments to surpass interest costs.

At the peak of 6.57% in August 2023, this stretched to 19.5 years, with 86% of the first payment covering interest.

In March 2022, when rates were 2.38%, interest accounted for just 49% of the initial payment, and total interest over 30 years was £206,000 less than at the 2023 peak.

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