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High mortgage costs mean renting is still cheaper than buying

Renting Buying
Renting Buying

Renting is now cheaper than owning a home in almost all of Britain as stubbornly high mortgage rates take their toll, analysis shows.

Would-be buyers with a 5pc deposit face paying £300 more per month in mortgage repayments than if they continued renting, undermining the Government’s mortgage guarantee scheme designed to boost homeownership, analysis by estate agency Hamptons found.

Rents on average cost £1,337 while the typical mortgage costs £1,637 a month.

Mortgage rates would need to fall from 6.1pc today – the average rate for a 95pc mortgage according to the Bank of England data – to around 4.2pc to make the monthly cost of renting and buying the same across Britain.

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Across Scotland, the North and Yorkshire and Humber, the monthly cost difference between renting and buying with a 5pc deposit is £100 per month. In the Midlands the difference is higher at £122 per month.

The difference is greatest in London, where paying a mortgage would cost the average tenant an extra £775 per month, or £9,300 a year.

In a bid to give would-be homeowners a leg up onto the property ladder, the Tories introduced the mortgage guarantee scheme, which essentially underwrites potential losses for a lender offering a mortgage of 95pc of a property’s value.

The scheme has been used by around 40,000 buyers since its inception in 2021.

In December, Chancellor Jeremy Hunt extended it until June next year and Labour has promised to keep it in place if it wins the July general election.

However, increased mortgage rates mean that those using the scheme may be able to get on to the ladder but struggle with the monthly costs.

High interest rates meant that mortgage guarantees in 2023 ran at just 35pc of the 2022 average, according to Hamptons.

Completions under the scheme are only around 15pc of the level that the Help to Buy scheme achieved.

Prime Minister Rishi Sunak has pledged that a new Conservative government would revive the scheme with it running for another three years. It offers first time buyers of new builds a 20pc interest-free government loan for the five years.

The average price of property coming to the market for sale dropped by just £21 in June (0.0pc) to £375,110 after reaching a record high in May, according to Rightmove.

Tom Bill, of Knight Frank, said: “Overall, mortgage rates are unlikely to fall meaningfully any time soon and that, together with a degree of political uncertainty, is keeping demand in check.

“Ironically, it has rarely been a better time to be a buyer in recent years.”

Despite slowing house price growth, prospective homeowners find themselves at the sharp end of an affordability crisis.

Despite earnings having doubled since 1997, house prices have increased four-and-a-half times over the same period.

Homes are slowly becoming more affordable again – they cost 8.3 times buyers’ incomes last year, down from 8.5 times in 2022, according to the Office for National Statistics.

But house prices still rose by £9,500 on average in 2023, compared with average earnings increasing by just £1,900 over the same period.

Meanwhile UK rents have continued to rise – by 6.2pc on existing tenancies in 2023, after rising by 4.2pc in 2022.

Aneisha Beveridge, of Hamptons, said: “High mortgage rates have squeezed buyers with small deposits out of the market, forcing more households to rent for longer.

“The uplift in the monthly cost to buy a home with a small deposit has made purchases unviable in most places south of Birmingham.”