You are here: Home - Mortgages - First Time Buyer - News -

Latest base rate rise could make renting cheaper than buying

Written by: Shekina Tuahene
This month's base rate rise to 1.25% could make buying a home more expensive than renting if costs are passed on to borrowers.

The gap between rental and mortgage costs has been squeezed as in May, it was £40 per month cheaper to service a mortgage with a 10% deposit than it was to rent the same home. In November last year, it would have been £160 cheaper. 

However, analysis by Hamptons revealed that if the 0.25% increase to the base rate is passed onto mortgage costs, renting a home will be £1 cheaper than the monthly costs associated with buying.  

Hamptons calculated that for someone with a 10% deposit, the rate rise will add £41 to their average monthly mortgage repayment, taking it from £1,112 to £1,153. 

By contrast in May, the average rent rose to £1,152. 

This differs regionally as Hamptons’ analysis found it was typically cheaper to rent than buy in the South, while this was the opposite in the North. 

In the South East, it is £1 cheaper per month to buy while in the South West it is £2 cheaper. In the East of England, it is £64 cheaper per month to rent than buy, while in the East Midlands it is £44 cheaper. 

Aneisha Beveridge, head of research at Hamptons, said: “Rising interest rates are set to swing the scales for would-be first-time buyers. For the last 11 months it’s been cheaper to buy with a 10% deposit than rent due to rental growth running hot and mortgage rates near record lows.   

“But the Bank of England base rate hike will change this once again, pushing the cost of buying back above renting – a reversal of pre-pandemic times when the average buyer saved nearly £800 a year by owning rather than renting.”  

She added: “For many buyers though, it isn’t just the challenge of servicing higher monthly mortgage repayments, it’s saving up for a deposit which remains the big barrier. 

“Over the next year or so we expect several further small interest rate rises, with mortgage rates set to peak around the middle of 2023 which will add to the cost of buying in cash terms. We also expect rental growth to slow later in the year as rising living costs squeeze affordability. By this point it will mean that for new buyers with smaller deposits, the monthly cost of purchasing a home will be significantly higher than renting one.” 

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

How your monthly bills could rise as the base rate reaches 1.25%

The Bank of England has raised the base rate to 1.25% as predicted – the fifth consecutive rise in just six ...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week