A mortgage is now a FIFTH cheaper than rent – but there’s one region where tenants still fork out less

Owning a home and paying a mortgage is once again far cheaper than renting, new analysis by Zoopla has revealed.

Eighteen months ago in late 2023, high mortgage rates narrowed the gap to such an extent that renters were paying just 2 per cent more than first-time buyers for their monthly housing costs. 

However, by October 2024 it widened to 17 per cent, and now average first-time buyer mortgage payments are 20 per cent lower than average rents according to the property portal. 

The average mortgage for a first-time buyer purchasing with the typical 20 per cent deposit is £1,038 a month compared to the average rent of £1,248 a month.

The analysis based the mortgage costs on a total repayment term of 30 years, which has become the norm among first-time buyers. 

The results may come as a surprise given that mortgage rates are still high by some standards. 

Most first-time buyers are securing rates of between 4 and 5 per cent – though at some points in 2022 and 2023 they may have paid more than 6 per cent. 

One area where renting IS cheaper 

House price growth has stalled for the last few years, while rents have powered ahead – rising 32 per cent since 2020. 

Zoopla’s research found it is now cheaper to buy than rent across all regions of the UK – apart from the East of England, where it is 6 per cent more expensive to own a home on a monthly basis. 

Renters pay £70 less than owners, a total of £1,228 per month. 

The widest gap is in the North East, where mortgage repayments are 24 per centless than rents. 

Zoopla also drilled down into postcode areas, revealing that some cities and towns have an ever wider chasm between the monthly costs of buying and renting. 

Buying costs are more than 30 per cent below rental costs in Glasgow, Edinburgh, Newcastle and Liverpool as well as Cardiff in Wales. 

However, there are some areas where buying costs are quite a bit more than the cost of renting.

In Harrogate in North Yorkshire, buying costs 15 per cent more than renting while in Watford in Hertfordshire, buying costs 7 per cent more than renting. 

Buying is still unaffordable for many

Whilst buying is cheaper than renting across the majority of the UK, affordability challenges remain.  

Owning a property also comes with extra costs such as maintenance and buildings insurance, which renters won’t need to worry about.  

Raising a deposit is a significant constraint for first-time buyers. An average 20 per cent deposit on a typical first-time buyer home ranges from £27,700 in the North East, to £83,400 in London.

Many first-time buyers rely on help with their deposits, with 63 per cent admitting that they received cash from family members when buying their first home.

Richard Donnell, executive director at Zoopla, said: ‘There remain challenges facing first-time buyers, especially those on average incomes or with small deposits. 

‘Mortgage regulations introduced in 2015 to stop a housing market boom and bust have created a higher hurdle to home ownership for those on middle incomes, who can afford to make rental payments but are unable to prove they can afford higher mortgage ‘stress’ rates should borrowing costs increase in the future. 

‘The more first-time buyers priced out of home ownership, the greater the pressure on the private rental market and rental levels.’

On Friday, the Financial Conduct Authority announced a call for evidence on mortgage stress testing. 

These are the checks banks carry out to ensure someone could still afford their mortgage if the cost increased by a certain amount.  

For example, on a two-year fix charging 5 per cent, a lender might stress test the borrowers’ ability to pay 8 per cent, or on a five-year fixed rate it might stress test at 7 per cent.

Donnell believes that too many lenders are currently ‘stress testing’ affordability at an 8 per cent mortgage rate and that this is too high. 

He argues that while post-financial crisis regulations stopped boom and bust in house prices, they have created an extra hurdle for first-time buyers, stoking demand for rented homes and pushing rents higher. 

‘We do not want to return to the loose lending that preceded the global financial crisis,’ added Donnell.

‘A modest loosening in lending rules with mortgage stress testing rates closer to 6-7 per cent would help more middle to higher income renters access home ownership and ease some of the pressure in the rental market without causing a boom in house prices.’

Mortgage lenders are also subject to a rule which means no more than 15 per cent of their mortgage book can be on loans above 4.5 times the borrower’s income.

This means most people are restricted to borrowing no more than 4.5 times their gross annual salary, or collective salaries if buying as a couple.