For the first time in two years, the cost of renting and buying a home in the UK is now the same.
This shift has sparked a lot of conversation among potential buyers and renters alike. Could this be the new normal? Does it mean that renting is now just as good as buying—or the other way around?
Let’s take a deeper dive into this shift and what it means for the UK property market.
The Numbers: Renting vs. Buying
According to recent data from Hamptons, the average monthly mortgage repayments for first-time buyers with a 10% deposit now sit at £1,328. Interestingly, this is just below the average rent of £1,356.
This marks a major shift compared to two years ago, when renting was actually £48 cheaper than buying. In fact, prior to that, there was an even greater disparity between the two.
So, what’s driving this change? A subtle drop in mortgage rates has brought monthly payments in line with the average cost of renting.
At just over 5%, mortgage rates are much lower than they were during the pandemic and the post-mini-budget spike of 2022. And as experts predict that rates may fall further, the gap between renting and buying could shrink even more.
Historical Trends: Is Buying Always a Better Deal?
When you look at the long-term trend, buying a home has historically been a better deal than renting. In fact, since 1987, it has been cheaper to buy than rent in 64% of months. Rent tends to be more affordable only during times of economic stress.
For example, during the early 1990s recession, mortgage rates soared to 15%, making buying a home far more expensive than renting. Similarly, from 2007 to 2010, tighter lending for low-deposit buyers once again shifted the advantage back to renters. Yet, despite these shocks, buying has consistently proven to be more cost-effective over the long run.
The Rental Market: London’s Declining Rents
In Greater London, the average rent for new lets has fallen by 1.7% year on year, dropping to £2,255 per month. This is the lowest level in nearly two years. In inner London, the drop is even more significant at 4.4%. Why the decline?
Simply put, people are no longer willing to pay these high rents, and landlords are being forced to lower prices to secure tenants.
However, this is a mixed picture across the UK. While rents are falling in London, they are still climbing in other regions.
Nationally, new lets have risen by 1.5%, bringing the average rent to £1,356, while renewals have increased by 4.2% to £1,250. Interestingly, renewals are now outpacing new lets in growth since September 2023. The reason? It’s often cheaper for tenants to stay in their current rental than to move to a new property.
The Wildcard: What’s Next for Mortgage Rates?
The wildcard in this equation is, of course, mortgage rates. While rents tend to track inflation and wages, making them relatively stable over time, mortgage rates are more volatile. If inflation continues to ease and central banks continue to cut rates, we could see mortgage rates fall even further, potentially making buying more attractive. On the flip side, if mortgage rates surge again due to economic factors, renting could become the better option.
Is It Better to Rent or Buy?
The decision to rent or buy depends on various factors, including your personal situation, financial goals, and the property market in your area. Let’s break down the pros and cons of both options.
Buying a Home: Pros and Cons
Renting a Home: Pros and Cons
Renting vs Buying: Which is the Better Deal?
There’s no one-size-fits-all answer to whether it’s better to rent or buy. It depends on your financial situation, your long-term goals, and your preferences. However, with mortgage rates falling and rental prices still climbing in some areas, now could be a great time to reconsider your options.
If you’re financially ready, buying might be the more cost-effective choice in the long run. But if you’re not prepared for the upfront costs and responsibilities of homeownership, renting could still be a better option, at least for the time being.
Ultimately, the property market is full of nuances, and the choice to rent or buy is deeply personal. Whether you’re a first-time buyer, an expat, or a long-time renter, it’s important to consider all the factors involved before making a decision.
10 Key Steps to Building a Thriving Property Portfolio
If you do feel ready to explore options for buying a property, we have the perfect resource to help you.
Our eBook “10 Steps to 10k per Month with UK Property” provides the knowledge and strategies you need for success in the UK real estate market:
- In-Depth Market Knowledge: we share our deep understanding of local trends, regulations, and opportunities.
- Legal & Financial Expertise: the UK’s legal and financial systems can be daunting. Let us walk you through it in detail.