Homebuyers still better off than renters

Despite the increasing cost of borrowing currently hitting homebuyers across the property market, it still remains less expensive to buy when compared to the cost of renting, according to the latest research by Revolution Brokers.

The mortgage firm looked at the current cost of buying property in today’s market, both with respect to a full mortgage repayment and an interest only repayment plan and how this cost compares to those still residing within the private rental sector.

The research shows that the average tenant across the UK is currently paying £1,143 per month to rent within the private rental sector.

For the average homebuyer currently looking to buy with a variable rate mortgage at a 75% loan to value and an average rate of 4.45%, the cost of a full mortgage repayment comes in at £1,223 per month, marginally more than the cost of renting.

But those who are only making interest only payments on their mortgage each month are currently paying an average of £829 per month - 27.5% less than the current cost of renting.

The same homebuyer opting for a three- and two-year fixed rate product would be facing a full monthly repayment of £1,075 and £1,098 respectively, meaning that even when repaying a mortgage in full, it still comes in as a more affordable option versus renting at £1,143 per month.

For those repaying their mortgage on an interest only basis, a three-year fixed rate would see them paying £604 per month, while a two-year fixed rate climbs to £641 per month. Again, this is 47.1% and 43.9% lower than the cost of renting within the private rental market.

But with the average mortgage rate predicted to hit 6%, could renting soon become the better option?

Well, the same 75% loan-to-value mortgage at an average mortgage rate of 6% would see you making a £1,412 full monthly repayment. However, the monthly cost of repaying this mortgage on an interest only basis would still only reach £1,095 per month, still 4.2% less than the average cost of renting.

The founding director of Revolution Brokers, Almas Uddin, commented: “The fact that it still works out cheaper to repay a mortgage on an interest only basis versus the cost of renting, probably says more about the inflated state of the private rental market than it does current mortgage affordability.

“Even if mortgage rates do climb to a lofty six per cent, the interest only payments when borrowing to buy would still be less than the cost of renting and while you won’t be chipping away at your outstanding mortgage balance, you will own your own home rather than lining the pockets of a landlord.

“Of course, while the scenario of an interest only mortgage payment versus paying rent is a similar one, the cost of securing a rental property via a rental deposit is a far easier task financially when compared to the cost of a mortgage deposit.

“However, for those that can manage to overcome this initial hurdle, it remains far more worthwhile to buy versus renting, even in current market conditions.”


Comments 1

  1. Bit of a subjective article probably based on London and ignoring soaring interest rates. Consider, in Rochdale you can still buy a two bed terraced house for £150,000 (or less). You would need to put down 10% so have to mortgage £135,000. With mortgage rates at 6.4% (and rising) this would cost you £903/ month (repayment over 25 years). The market rent is about £750 month. So the tenant is £153/month better off. Also don’t forget that the tenant has no maintenance costs, no insurance costs so the saving is probably well over £200/month. Additionally they have not had to lay out for any legal fees, mortgage arrangement fees etc. and have not had to fund a £15,000 deposit.
    The only thing with renting of course is that you will never own the property. In surveys the mere fact that tenants have to rent is a major factor in tenant dissatisfaction. That and a perceived sense of insecurity. However, you are at as much risk (or more) of eviction if you don’t pay a mortgage

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