Renting now cheaper than buying: What does this mean for first-time buyers?

New research has revealed that it is now cheaper to rent than buy a home in the UK for the first time since December 2014.

In March 2020, a buyer with a 10% deposit would have been around £102 a month better off buying a home rather than renting. However, in May 2021, tenants spent £71 per month less on rent than they would have on repayments on a 90% loan-to-value (LTV) mortgage for the same property, according to data from estate agent Hamptons.

The research found that the average UK tenant is currently paying £1,054 on rent, compared to £1,125 on monthly mortgage payments. This is in spite of rent rising by 7.1% on average over the previous 12 months. 

It's now only cheaper to buy a home rather than rent in 4 regions: the North East of England, the North West, Yorkshire & the Humber, and Scotland.

Why is it more expensive to buy than rent?

House prices have gone up by an average of around 10% over the past year, according the the Nationwide and Halifax House Price indices. This has been driven by a surge in demand as homeowners reassessed their needs during the pandemic and began to look for properties with outside space and home offices. Movers were also incentivised by the government's stamp-duty holiday, which has offered a tax saving of up to £15,000. 

The housing market has also been given a boost by the government's mortgage guarantee scheme, which has led to the resurgence of 95% LTV mortgages, which means first-time buyers haven't had to secure as much deposit, allowing them to get on the property ladder sooner.

While these factors have driven up prices in the short term, there are signs the housing market is starting to cool down again, with data from the UK House Price index, which is based on figures from HM Land Registry, showing house prices fell by almost 2% in April, compared with the previous month.

For more information on what these changes mean for you, read our article "First-time buyers: should you buy now?"

Should you buy or rent?

While there is evidence to suggest renting is now cheaper than buying, there are many factors to take into consideration when deciding whether to get on the property ladder.

There are pros and cons for both buying and renting, and for those considering moving into a new property, it is essential to review both options carefully before making a commitment. We've rounded up some of the key advantages and disadvantages of buying and renting to help you determine which option may be most suitable for you.

Pros of buying a house

• You will fully own your home at the end of the mortgage's term
• You should be able to make a profit if the value of the property is higher when you go to sell it than when you bought it
• You cannot be forced to move by a landlord
• Any changes you make to the design or layout of the property could increase its value and net you a profit when you go on to sell

Cons of buying a house

• Having to contribute a deposit of at least 5%, coupled with moving costs, including stamp duty, mean buying a house can be expensive
• You are responsible for paying for any aesthetic or structural damage to the property, such as leaks or damp
• If you default on your mortgage payments, your home can be repossessed
• Unless you get a fixed-rate mortgage deal, your monthly repayments will change as interest rates rise or fall

Pros of renting

• Finding and renting a home is usually quicker than the process of buying, and is now reported to be cheaper on balance across most of the UK
• You will not lose any money if the property's value goes down
• You are not usually responsible for paying for repairs, such as leaks or damp
• You may be able to rent a bigger home in a nicer area than you could afford to buy

Cons of renting

• If your landlord decides to sell or get new tenants, you have to move out
• Your landlord can set rules and restrict changes you can make to the property
• You have to pay a deposit, and the landlord may keep some or all of it if there is damage caused by the tenants
• Your landlord could decide to increase your rent

How to make the leap from renting to buying

While it's true that transitioning from renting to buying can be expensive and time-consuming, there are a number of ways that you can prepare yourself for taking that all-important first step onto the property ladder.

Budget, budget, budget

Whether you are saving for a deposit or just generally trying to get your finances in order to help you secure a mortgage, budgeting is key. Using a budgeting app can help you identify your spending habits and work out where you can save money,

For budgeting app suggestions, read our article on the best budgeting apps in the UK,

Consider a 95% LTV mortgage

As part of the government’s pledge to make it easier for first-time buyers to get their foot on the property ladder, 95% LTV mortgages have been reintroduced, meaning that you can buy a property with as little as a 5% deposit.

Check out our list of the best 95% LTV mortgages for June 2021 for an up-to-date look at the best offers on the market.

Open a LISA

A Lifetime Independent Savings Account (LISA) is specifically designed for first-time buyers saving for a deposit, as well as those saving for retirement. You can put in a maximum of £4,000 per year and the government tops that up by 25%, up to £1,000 per year.

There are some limitations on who can take our a LISA and when you can withdraw the money, so read our article "Lifetime ISAs explained - are they the best way to save?" for more information.

Find out if you're eligible for a Help to Buy Equity Loan

The government's Help to Buy Equity Loan is specifically designed for first-time buyers. It is aimed at those struggling to save up for a deposit by offering a loan of 20% of a property's value (or 40% in London) which is interest-free for the first 5 years. It is designed to allow you to buy a property with as little as a 5% deposit, and is best suited for those eager to purchase a property they might not otherwise be able to afford.

For more information on the Help to Buy Equity Loan, check out our article "What you need to know about the Help to Buy Equity Loan".

Consider a Shared Ownership scheme

If you are struggling to afford to buy a house but still want to get on the property ladder, you can opt for the government's Shared Ownership scheme. It allows prospective homeowners to buy a percentage of a property whilst paying rent on the remaining portion with the option to increase the share of the part that they own over time.

For more details on how Shared Ownership works, read our article "What is Shared Ownership - and should I do it?".