Is Buying a New Home Cheaper Than Renting?
Buying a home with a 10% deposit is currently cheaper than renting, new data from This is Money has shown.
As of December 2023, buying a home with a 10% deposit was £9 lower per month compared to renting on average, according to analysis by the estate agent Hamptons shared with This is Money.
It represents the first time since May 2023 that the average single renter is worse off each month than the average single first-time buyer – even with a mortgage covering 90% of a property’s value.
Hamptons’ analysis is based on a typical single person on an average income, choosing to buy or rent the average home.
The gap between the cost of renting and buying is likely to have widened further over the course of January 2024, given that more than 50 lenders have cut mortgage rates since the start of the year.
The average five-year fix has fallen from 5.56 to 5.18%, according to Pioneer Mortgage Services, while the average two-year fix fell from 5.94 to 5.55%. The lowest five-year fixed mortgage rate when buying with a 10% deposit is 4.38%.
On a £200,000 residential mortgage being repaid over 30 years, that’d mean paying £999 monthly for the first five years.
Meanwhile, the average asking rent for new properties coming onto the market in the same period reached a record high of £1,280 a month for those outside of London, according to Rightmove.
Though saving up for a deposit is often the biggest barrier to home ownership, this data proves that for those who can afford to, buying will likely make financial sense.
Aneisha Beveridge, Head of Research at Hamptons says: “Last month became the first time in a while that it became cheaper to buy than rent with a 10% deposit.
“For much of 2023, affordability conditions were particularly tough for first-time buyers. Small house price falls were more than offset by higher mortgage rates.
“The outlook in 2024 should be better. For those with a 10% deposit, mortgage rates now begin with a 4 rather than 6. This will enable first-time buyers to borrow more.
“While for most of last year it was cheaper for a first-time buyer with a 10% deposit to rent than buy, these sums are set to change throughout 2024 due to lower mortgage rates.”
For first-time buyers able to get on the ladder with a bigger deposit, buying will likely make even more financial sense.
The average deposit put down by first-time buyers in 2023 was around 25%, according to UK Finance.
Based on the average house price of £285,000 in November 2023, according to the Office for National Statistics, that would amount to £71,250.
According to Hamptons’ analysis, for someone with a 25% deposit, the cost of buying has never quite surpassed the cost of renting – even when mortgage rates peaked in late 2022 and in summer 2023. At its closest, renting remained £33 per month more expensive than buying.
By December 2023, the gap had widened to £302 per month, a product of falling rates and rising rents.
This means the gap between the cost of renting and buying is closer to where it was in 2021, back when mortgage rates were between 1.5% and 2% and rents were also roughly 30% lower.
Buying brand-new with Mulgrave also means you are buying a home designed using the most advanced building materials, ensuring that the highest level of energy efficiency is embedded at the point of construction.
HBF research shows the average new home is much more energy efficient that an second-hand property. With energy bills for brand-new homes £180 per month cheaper on average.
You can additionally rest assured that any defects found in the first 2 years will be covered and you’ll have a whole decade of cover for structural issues, as new build homes come with a 10-year insurance warranty, offering further protection on your property.
Jeremy Leaf, north London estate agent and a former Rics residential chairman, says: “If you have been paying very high rent, as mortgage rates start to come down, you may be better off becoming a homeowner if you can.
“Much depends on your own individual circumstances, so you need to run the numbers and seek advice from a broker.
“It is not just the purchase price to consider, but running costs, and what needs to be done to the property.”
Whether you are looking to first step onto the housing ladder, thinking about downsizing, need a bigger home for your growing family or have an existing property to sell, now is a great time to save in a medley of ways when buying brand-new in Burniston near Scarborough or Rufforth and Shipton by Beningbrough near York.
*Although the information provided is believed to be accurate at the date of publication, you should always check with the product provider to ensure that figures are the most up to date.
