Is buying a house cheaper than renting?

Despite the latest spike in interest rates, owning a home is still cheaper than renting.

Analysis by Halifax found that, for a first-time buyer with a mortgage, the monthly cost of owning a three-bedroom home is £42 less than the rental cost of an equivalent property.

Renting such a property costs on average £1,013 per month, compared to a mortgage on it, which costs £971. The difference equates to almost £500 a year in savings.

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Barriers to buying

“A predicted fall in house prices this year will be welcome news for those looking to buy their first home,” said Kim Kinnaird, mortgages director at Halifax. But “it doesn’t change the fact that getting on the property ladder remains expensive – a problem that is compounded when rents are high”.

According to research by Hamptons estate agents, it can take a first-time buyer saving up for a 15% deposit as long as ten years to reach their goal – and an additional five years if they are looking to buy in London.

Rents have increased in recent months, a trend that is forecast to continue due to “growing demand from tenants and a shortage of rental properties”, said The Guardian. Rising mortgage costs and tax changes are encouraging a lot of “smaller landlords” to sell.

Some first-time buyers have criticised Chancellor Jeremy Hunt for failing to introduce any major changes to housing policies in his Budget, with “the dream of owning a home” now “falling even further out of reach”, said the i news site.

Regional rents

According to Halifax’s analysis, the East of England is now the only region or nation in the UK where it is more costly to own a property than to rent. Homeowners here pay on average 8% more a month – around £90 – compared to renters in an equivalent property.

The opposite is true in London, where homeownership saves an average of £2,950 annually compared to renting. The biggest percentage gap between owners and renters is in Scotland, with homeowners saving an average of 21%.

However, experts point out that monthly payments are only part of the cost of home ownership. There are expenses such as buildings insurance, home repairs and maintenance costs such as boiler servicing to take into consideration, says Which?.

‘Uber-rich renters’

“The vast majority” of renters “cannot afford to buy”, said The Times. That includes “doctors, civil servants and the super-rich – individuals who would certainly have owned their homes 40 years ago”.

Some households choose to rent due to “fierce competition for entry to highly-rated schools” in areas with “unaffordable” property prices. Others “love the area” where they live but continue to rent because “runaway” house prices prevent them from buying.

But there is also a “rapidly growing cohort of very rich renters” such as “footballers, celebrities and business titans”, said The Times, who “commonly pay £40,000 a week for some of the most luxurious mansions” in the UK.

Very wealthy people often have “transient lifestyles” and may not want to invest in a permanent UK base. But “by far” the “most important” reason that this type of individual rents is the amount of tax they would pay if they were to buy a property equivalent to what they rent, which has “risen exponentially” with increases in stamp duty.