Why renting can be cheaper than buying a home
| Published date | 31 August 2023 |
First-time buyers have historically looked forward to paying less mortgage repayments than rent. However, with mortgage rates remaining at an all-time high for 2023, the cost of repayment has become more expensive than rent on a similar property.
We asked Jag Chaggar, managing director of Tutis Estate Agents in Holbrooks, about why renting is now cheaper than buying a home, as well as ways to make your mortgage repayments cheaper.
Here's a thought. Imagine that the current property you are renting, you are now eager to buy with a mortgage on the following broad terms of a 15% deposit on a 30-year term with a mortgage rate of 5.6%.
For first-time buyers, Jag has found that the monthly rent is £122 cheaper on average compared to the monthly mortgage repayment on the same property, meaning that renting is more affordable currently than buying for this specific group under the given assumptions. This shows that higher mortgage rates have impacted first-time buyers significantly.
"Over the last year, these mortgage repayments have increased by a third, a notable increase in a short period of time. While repayments have experienced a substantial increase due to high rates, rents have risen by a lower 10.4% over the same period, and this combination of factors has contributed to the cost of buying more expensive than renting," Jag said.
"From 2010 to the time leading up to the mini-budget fallout in autumn 2022, average mortgage repayments for first-time buyers were consistently lower by £210 per month compared to renting on average.
"This made it financially feasible for many first-time buyers to consider purchasing larger homes, including 3 and 4-bedroom houses." Jag said.
He added that the market dynamics shifted since autumn 2022, which resulted in a 'shrinking difference' between mortgage repayments and rent which has been influenced by factors from 'interest rates, housing prices, government policies and economic conditions.' .
How can I make my mortgage repayments cheaper?
If you still want to buy a property, Jag recommends increasing the size of your deposit as this can have several impacts on your mortgage and financial situation such as: Lower monthly mortgage payments - This means you'll need to 'borrow less money' from the mortgage provider which leads to lower payments which can improve your 'financial flexibility'...
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