Buying a property is cheaper than renting again – how much could you save?

High mortgage rates have led to falling house prices and a slump in sales over recent months but new research suggests first-time buyers may still be better off getting on the property ladder compared with renting - at least if you have a big enough deposit.

First-time buyers have been hampered by rising mortgage rates recently, making it more expensive to get on the property ladder, even if there are signs of falling house prices.

Many of the big rate hikes have slowed as interest rates remain frozen but typical mortgage pricing is at around 5% compared to the 1% to 2% rates that dominated the market only a couple of years ago.

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But the cost of renting hasn’t got any cheaper either due to a lack of supply and high levels of demand.

There was a point last year where renting actually became cheaper than buying with a mortgage as rates were so high.

Research by property website Zoopla has found that a third of homes of the 500,000 homes currently for sale can be bought with a mortgage and monthly repayments that cost less than the average rent in the same area.

“First time buyers are an important source of demand for homes accounting for 36% of home buyers looking to move home in the next two years,” says Izabella Lubowiecka, senior property researcher at Zoopla.

“While higher mortgage rates have reduced buying power, our data shows there are many areas of the country where home ownership is more accessible assuming the buyer has saved a 20% deposit.”

This may only be the case for deposits of 20% or more though as further research by Hamptons suggests that people with just 5% or 10% to put down could be better-off renting in some regions.

Where is it cheaper to buy or rent a property?

Zoopla’s analysis found that at a national level, the average monthly UK rent is currently £93 per month or 8% more expensive than the average mortgage repayment for a first-time buyer. 

This is based on getting a mortgage with a 20% deposit on a 30-year term at an average mortgage rate of 4.6%.

The difference between buying and renting is an improvement since last summer when mortgage rates were 1% higher and it was cheaper to rent than buy. 

There are of course regional variations.

More than 40% of homes in the north of England and in Scotland are cheaper to buy than rent, Zoopla said.

The monthly difference between the cost of renting and buying in these areas ranges between £240 and £425, according to the research.

However, Zoopla warns that the availability of affordable homes is at the highest risk of falling in these regions as house price inflation recovered earlier than in the southern regions of England. 

The south of England and the Midlands, however, have a lower share of homes listed for sale that are cheaper to buy than rent. 

The report found that just 27% of homes in the South West and a third of homes in the East Midlands have mortgage repayments lower than local rents, largely down to higher home prices in the region meaning that borrowing costs remain much higher. 

London also has a relatively high proportion of homes for sale where mortgage repayments are lower than rents, nine out of 10 of which are flats.

Small deposit buyers

It's a slightly different story for first-time buyers with small deposits though.

Agency brand Hamptons compared the cost of renting an average-priced home in each UK region compared with putting down a 5% deposit for a 95% LTV mortgage with a two-year fixed rate at an average of 6.1%.

The analysis found that it is only cheaper to buy compared with renting on a 5% deposit in Scotland and the North East, at £16 and £59 per month respectively.

In the Midlands there’s a higher difference of £117 to £122 per month.

Further south, where affordability is most stretched, most renters would find themselves worse off each month by purchasing a home, Hamptons said.

In the South West, an average first-time buyer with a 5% deposit pays £341 per month more to buy a similar home.  Meanwhile, in London, a mortgage would cost the average tenant an extra £775 per month.

Is now a good time to buy a property?

Mortgage rates remain relatively high but some analysts suggest this could benefit those looking to get on the ladder.

Higher borrowing costs reduce demand, which can create a buyers’ market as sellers are more willing to cut prices to attract viewings and to get offers.

There are still other costs involved with buying property though such as the mortgage deposit, stamp duty and legal and moving fees.

Many commentators are expecting house prices to fall this year. The main house price reports from Halifax and Nationwide showed average prices rose at the start of the year. This was amid a mortgage price war that saw pricing fall and demand grow.

That has since dissipated though as inflation hasn’t fallen as much as expected and interest rates have remained frozen.

More recent house price reports have shown growth is slowing annually and falling on a monthly basis in some cases.

Some may be tempted to wait to see if prices fall further.

But once interest rates drop, expected later in the summer, there could be more demand if borrowing costs fall that could push house prices up.

It can be hard to time a purchase at the right price and you don’t want to miss out on a decent property, especially if you will end up living in it for a number of years and hopefully will benefit from future growth anyway.