Buying vs renting: as mortgage rates remain at 5%, which is cheaper?

In the UK, buying a home has traditionally been the preferred option over renting. But is that still true?

Model house on calculator buying vs renting
(Image credit: Model house on a calculator © Getty Images)

From slowing house price growth to high mortgage rates, many potential property purchasers may be considering if now is a good time to buy a house or if its better to rent while the cost of borrowing is still high.

Average mortgage rates shot up last year as the Bank of England hiked rates to tackle soaring inflation. Pricing may have fallen in recent months as the base rate remains frozen but it is still higher than the rates of around 1.5% to 2% that many borrowers will have got used to as recently as 2021.

The average price for a two-year fixed rate mortgage as of March 2024 is 5.81%, according to Moneyfacts, while the cost of a typical five-year deal is 5.39%.

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This is feeding into house prices as buyer budgets become more stretched. That influences how much a property buyer can afford and will be willing to offer for a new home, especially with other bills also rising. 

Renting vs buying

Renting has traditionally been more expensive than buying a house when you look at monthly accommodation costs. 

And by the looks of it, it’s not getting cheaper anytime soon. Thinktank Resolution Foundation predicts average UK rents to surge by 13% over the next three years, due to a bounceback from Covid-19, rising cost of living and increasing wage growth

But when you look at the bigger picture, things change a bit. Recent analysis by Halifax has shown that higher mortgage rates have actually made renting cheaper in most UK regions.

Based on its own lending data for a typical first-time buyer three-bed home, Halifax said the monthly cost of renting is now cheaper than what a homeowner would pay each month for an equivalent property. 

The difference was largest in the East of England, where renters were an average of £2,325 better off each year. However, owning a first home worked out as being cheaper in the South West, London and Scotland.

Swipe to scroll horizontally
RegionAverage monthly mortgage Average monthly rent
North East£827£801
Yokrshire & Humber£954£809
North West£1,030£907
East Midlands£1,081£936
West Midlands£1,118£1,056
East of England£1,546£1,353
South West£1,298£1,437
South East£1,705£1,551
Greater London£2,241£2,253
Northern Ireland£779£692

This may change as mortgage rates drop though.

The property website looked at the cost of mortgage repayments for the average local house price versus monthly rent for first-time buyers using a 20% deposit, 30-year mortgage term and 4.5% mortgage rate.

Based on the average price of a rental home at £263,096, Zoopla found that the average monthly mortgage repayment would be £1,077, but renters typically pay £127 per month more at £1,204.

Swipe to scroll horizontally
RegionAverage property priceAverage monthly rentMonthly mortgage repaymentDifference
North East£109,742£672£44933%
North West£152,830£831£62525%
Northern Ireland£144,310£750£59121%
Yorkshire and the Humber£150,879£782£61821%
West Midlands£183,308£883£75015%
East Midlands£177,970£846£72814%
South West£242,972£1,061£9946%
East of England£265,837£1,145£1,0885%
South East£300,320 £1,294£1,2295%

That may sound like good news for renters looking to buy.

But high rents make it hard to save for a deposit for a mortgage and tenants may struggle to meet strict affordability criteria.

So, which is the better choice financially – buying vs renting?

The pros and cons of renting

There are lots of decisions to make when looking at where to live and whether to rent or buy. Some of the positive aspects of renting include the following: 

  • Flexibility – you can move after as little as six months if the tenancy or area (or a new relationship that you’re ‘testing) doesn’t suit you
  • You are not responsible for paying for the general upkeep of the property or fixing things when they go wrong as that will be down to the landlord
  • If you rent a furnished property you don’t have to pay for furniture or white goods
  • Getting on the rental ladder is theoretically easier than getting on the property ladder - though the increasing competitiveness of the rental market may null this argument 
  • The rental property’s value isn’t your personal concern
  • There are no admin fees charged by landlords and letting agents

The major cons of renting include the following:

  • Flexibility is also a disadvantage as much as it is an advantage: The duration of a tenancy agreement is generally decided by the landlord. The decision to increase rent or to sell up is also the landlord’s, leaving tenants with no option but to leave. The average length of a tenancy is two years, according to property website Rightmove. Flexibility in fact all points to a lack of stability.
  • You won’t have the option of decorating (unless your landlord allows it)
  • There might be restrictions on what you can do with the property
  • There is little enforcement in place to protect renters from rogue landlords or unsafe properties.  New legislation going through Parliament under the Renters Reform Bill should give tenants more rights by abolishing ‘no-fault’ section 21 evictions and letting them challenge rent rises.  
  • You may not be allowed a pet

The pros and cons of owning your own home

The decision to rent or buy will usually come down to the costs involved. The positives of being a property owner include: 

  • You will own the asset when the mortgage is paid off
  • You have more stability than a renter as you won’t have to move out if a landlord decides they want to sell the property
  • You can do what you want to the property, within planning regulations

Some of the downsides of owning a home include:

  • You’ll have to pay fees such as stamp duty and legal fees
  • You’re tied into a long contract; if you’re unable to pay your mortgage your house could be repossessed
  • You may need to buy all your own furniture and white goods
  • Owning a house can mean a lot of money is tied up within the property and isn’t readily available for other things, such as supporting children through university or even meeting the rising costs of everyday living
  • There are even more costs associated with selling such as agency fees.

Is it cheaper to buy or rent?

Data historically shows it is cheaper to buy a home in the long run.

But recent rate changes have made the decision less clear-cut for potential owners.

“Making the move from renting to home ownership can be difficult for many, as raising a sufficient deposit and then finding the right property can be challenging,” says Kim Kinnaird, mortgages director at Halifax.

“While a fall in house prices will be welcome news for those looking to buy their first home, it doesn’t change the fact that getting on the property ladder remains expensive – a problem that is compounded when rents are high, impacting the ability to save.”

Michael Webb, managing director at Mortgage Republic Limited, said: “Historical low interest rates, and government intervention in the form of help to buy and stamp duty exemptions had buying a property as the cheaper option to renting, on a monthly basis, for over a decade.

“Rapidly increased interest rates, without a correction of note in property values, has meant that typically it will now be cheaper to rent than buy.”

Yet buying a house isn’t generally seen as a short-term option and so you’ll need to weigh up the costs over a longer period.

Mortgages are loans. It’s money you owe to the bank and have to pay back, with interest.

Interest rates have been inching higher over the last year, pushing up the cost for borrowers. They have been held at 5.25% since August, while inflation has fallen to a two-year low, giving hope that rates have peaked.

The Bank of England’s December Financial Stability Report predicts that hundreds of thousands of mortgage borrowers coming off a fixed-rate deal will see their repayments rise by around £200 per month by the end of 2024, while some could see monthly increases of up to £1,000.

But a lack of property supply and landlords exiting the sector means rents are also on the rise.

HomeLet’s latest Rental Index report for February 2024 showed rents are up 7.4% annually, but this rate has slowed from around 9% at the end of 2023. 

This is fast outpacing earnings though, which rose 6.1% between October and December 2023.

There may be a limit to how far rents can rise, which could be good for tenants hoping to set more aside for a mortgage deposit.

Zoopla data shows rents increased by almost 10% in 2023 but adds that there are limits to what tenants can afford and growth may halve in 2024.

There are risks that tougher renting rules and higher buy-to-let costs could lead landlords to exit – reducing supply – or push up rents further.

Savills predicts that rents will increase by 6% this year due to a shortage of supply, but the agent warns that rental growth will start to slow between 2025 and 2028 - hitting 2% - as tenants reach the limit of what they can afford to pay.

Is it worth buying a house?

On the surface, the costs associated with buying a house can seem daunting, but for some, the need to own their own home is visceral and the slog of saving for a number of years to afford it is worth it, especially if you’re planning to stay in the property for many years.

Homeownership also gives you a certain level of financial security. You know how much you have to pay on the mortgage and at the end of the loan term, the home is yours.

Additionally, data shows the market is currently favouring buyers. Sellers are cutting £14,000 off their asking prices, and discounts to asking prices are larger than in the pre-pandemic years.

Plus, rents can always go up and if you can’t pay, you could be thrown out.

Recent rises to mortgage rates have also increased the prices of buy-to-let mortgages and these costs are likely to be filtered down to tenants.

Imogen Sporle, head of regulated and term finance at Finanze, said: “Regarding the very common question I get at the moment of ‘As mortgage rates are going up is it cheaper to rent than get a mortgage?’, my answer to this is a hard ‘no’, and I think it always will be regardless of how high mortgage rates go up.

“This is because the majority of landlords have mortgages on the properties they are letting out, and although their mortgage payments are slightly lower as they often pay them on an interest-only basis, due to the lender's debt service coverage (DSC) ratio they will still have to increase the rent they charge when the mortgage rates increase.”

Is renting a waste of money?

There is a prevailing view that renting is a waste of money and that it’s better to be paying your own mortgage rather than hand over your hard earned money to a landlord.

But this ignores the realities of life.

Many people rent because they can’t afford to buy; there are four million households in the social rented sector in England.

Some people rent because they don’t know if they want to take on the responsibilities of home ownership when they’re not certain about where to live – after all, it is a big commitment.

In the short-term, renting can also make more sense financially.

Marc Shoffman
Contributing editor

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.

With contributions from