In years past when mortgage rates were low, the monthly cost of owning a home was almost always cheaper than renting – provided you could save a deposit. More recently, that has not always been the case. Average mortgage rates are around 5 per cent, compared to 2 per cent back in 2020, which has added hundreds of pounds per month to homeowners’ bills. But new data from Lloyds Bank shows that buying still beats renting in most of Britain’s large cities, as the cost of rent continues to reach record highs.
The average rent across the country was £1,577 per month in September, according to Rightmove. On average, someone would save 17 per cent on their monthly housing bill as a homeowner in a typical starter property. That is still the case if the buyer can only save a 5 per cent deposit, meaning they are paying one of the most expensive mortgage rates. The data only compares monthly mortgage and rent payments, and excludes the extra costs associated with home ownership such as insurance and upkeep. It also excluded London.
The city where buying is a THIRD cheaper than renting
Lloyds analysed 11 cities across Britain, and found that in all but two of them buying a home was cheaper on a monthly basis. This was based on having a five-year fixed mortgage with an interest rate of 4.78 per cent, on a 30-year repayment term. It assumed that they had put down a 5 per cent deposit. Glasgow led the way for prospective home buyers, with mortgage payments nearly a third cheaper than rent on a similar property. The mortgage on a typical first home in the Scottish city would cost £855 on average, compared to £1,251 in rent.
Therefore a first-time buyer there would save £396 per month by being a homeowner, or £4,752 per year. It is also one of the more affordable cities to buy a home, with the typical first-time buyer purchasing a home worth £172,000. A 5 per cent deposit would be £8,600. Newcastle ranks second for savings, with first-time buyers paying 20 per cent less on average for a mortgage than they would in rent. This means they could save £217 per month, or £2,604 per year according to Lloyds. The typical starter home costs £180,000, making a 5 per cent deposit £9,000.
Amanda Bryden, head of mortgages at Lloyds, said: ‘We know that saving for a deposit is one of the biggest hurdles for first-time buyers. ‘With rents having risen sharply over the last two years, many are already managing monthly payments that are higher than a typical mortgage.’ Before buying a home, it’s crucial to make sure you can cope with the additional costs both in the buying process, and in the long term. This includes legal fees, stamp duty and surveys, as well as long-term costs such as insurance, maintenance and unexpected repair bills.
However, Bryden adds that ‘For most, the long-term savings will outweigh these.’ Edinburgh, Bristol and Manchester rounded out the top five, with buyers able to save £184, £231 and £153 per month respectively by getting on the housing ladder. Bristol had the most expensive property prices on the list, with the typical first home buyer paying £311,000 for their property. A 5 per cent deposit would be £15,550. However, owning would cut their monthly housing costs significantly, going from an average of £1,778 as a renter to £1,547 if they purchased a home.
In Nottingham, Leeds, Liverpool and Birmingham, buyers save between £30 and £100 per month on average if they climb on to the property ladder. The two cities where renters win out financially are Cardiff and Sheffield – though the gains are marginal. In the Welsh capital, a first-time buyer’s typical mortgage payment costs £1,149 while renting would cost £11 less at £1,138. That’s based on a property price of £231,000. And in the steel city, a typical mortgage costs £945 for a first-time buyer while renting sets tenants back £893, or £53 less.
Buyers could be £28,978 better off in five years
The other main benefit of being a homeowner is that over time you will grow the share of the property that you own, known as equity. With more equity, you can reduce your mortgage costs or use the money to move to a more expensive home. Lloyds gave some examples of this, explaining that the Glasgow first-time buyer could build up an extra £13,818 of equity over five years. Add this to the savings they had made by buying and not renting, and they would get £37,578. Even if you took away their initial £8,600 upfront deposit, they would still be £28,978 better off.
However, this relies on them having the extra cash to put away the deposit in the first place, which many find difficult – especially in areas of the country where house prices are higher. First-time buyers are now being offered 2 per cent deposit mortgages and even part-interest only mortgages to address this challenge, though the latter can be risky if the buyer does not have a long-term strategy to repay the loan. Chancellor Rachel Reeves has also enabled banks and building societies to loosen their lending rules , in order to hand some first-time buyers bigger mortgages in relation to their income.
