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First-time Buyer

Renting cheaper than buying for first time since 2014

Liz Bury
Written By:
Liz Bury

Lettings firm Hamptons has said it’s cheaper to rent a home than to buy at 90 per cent loan-to-value (LTV) in most of the UK for the first time since December 2014.

The differential is particularly strong in London, and becomes even more intense for first-time buyers at 95 per cent LTV.

The average UK tenant paid £71 a month less by renting, compared to if they were making repayments on a 90 per cent LTV mortgage, in May. 

The average monthly rental was £1,054, or seven per cent lower than a 90 per cent LTV mortgage repayment at £1,125.

This compared to March 2020, when those who bought on those terms would have been £102 a month better off.

In London, a buyer in March 2020 was spending £123 a month less compared to a renter, but by May of this year the situation had reversed, making it £251 a month cheaper to rent.

At 95 per cent LTV, the difference in favour of renting is stronger compared to at 90 per cent, partly owing to the cost of high LTV loans. At 95 per cent, a buyer would spend £195 a month on average more compared to if they carried on renting.

“The pandemic has reversed a six-year trend which now makes it cheaper to rent than buy. A year ago, lenders were either increasing rates or withdrawing higher LTV mortgages,” said Aneisha Beveridge, head of research at Hamptons.

“It’s likely the balance will swing back towards buying, but this could be offset by rising house prices,” Beveridge added.

Though rents have risen by 7.1 per cent on average in the UK over the past 12 months — the fastest rate of growth since 2013 when Hamptons began measuring — strong house price growth coupled with the cost of higher LTV mortgages have increased the cost of buying and owning a home. 

In all regions it was cheaper to buy than rent back in early 2020, but this trend has been largely reversed. By May of this year, it remained cheaper to buy over rent in only in the North East, North West, Yorkshire & Humber and Scotland. 

Record rental price growth was seen in May for the South East at 13 per cent, South West at 11.5 per cent, the Midlands at 5.8 per cent and in Scotland, 8.8 per cent.

The Hamptons Lettings Index uses data from Countrywide Group to track changes to the cost of renting based on 90,000 homes.