For most of the last 40 years, it has been cheaper per month to pay a mortgage than rent - with just three occasions since January 1987 where the reverse was true, including in the early nineties when mortgage rates hit 15%. The most recent was in 2022, when the disastrous 'mini-Budget' meant mortgage rates rose steeply, swinging monthly mortgage costs much higher for buyers and making renting on average £48 a month cheaper.
However, with rates now sitting at just over 5% for first-time buyers, an FTB with a 10% deposit mean the average monthly mortgage payment (£1,328) is slightly cheaper than the average rental payment (£1,356).
However, the average hides a north-south divide - it all four southern regions, it remains cheaper per month to rent a home than pay a mortgage, whereas further north is it is typically much cheaper to pay a mortgage each month than to rent. In the North East, for example, the monthly cost of renting hasn't been higher than the average monthly mortgage cost since July 2011.
Aneisha Beveridge, head of research at Hamptons, 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.
“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. 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 would put material downward pressure on the headline inflation figure.”
