The cost of a mortgage on a first home is typically around £42 per month cheaper than renting, but the difference has reduced and in some parts of the UK renting may be the less expensive option, analysis suggests.
First-time buyers could typically pay around £971 per month for a three-bedroom home, while renters would potentially be forking out around £1,013, according to calculations by Halifax. The difference of around £500 per year between buying and renting is down from a peak reached in 2016, when owners were saving £1,567 annually.
In 2021, buying a home was found to be around £1,300 per year cheaper than renting, according to Halifax. Making the move from renting to home-ownership can be difficult for many, as raising a sufficient deposit and then finding the right property can be challenging.
Tto make the calculations, the bank factored in mortgage payments, household maintenance, repairs, minor alterations and insurance costs for home-owners. It used its own house price data, mortgage figures from UK Finance, as well as data from the Bank of England and the Office for National Statistics.
For renters, it looked at average rental payments, taking data from BM Solutions, a buy-to-let brand in the same banking group as Halifax. For most sources, the latest research covered the period to the end of 2022, although a small amount included January 2023.
Researchers assumed different deposit sizes would be put down depending on where in the UK someone was buying a home, but the average deposit size across the UK was 23%, or £64,598.
The UK’s biggest gap between owners and renters, in percentage terms, was in Scotland, Halifax said.
Those renting in Scotland faced paying an average £918 per month, compared with £727 for home-owners – a saving of 21% for those on the property ladder. In cash terms, those who had managed to get on the property ladder in London were nearly £3,000 a year better off than renters, according to the research.
However, Halifax calculated that people in the capital face needing a 32% or £188,663 deposit typically in order to get on the property ladder. At the other end of the spectrum, first-time buyers in the North East need a £32,920 or 19% deposit on average.
The East of England was found to be the only region where it was typically more expensive to buy a first home than rent one. Home-owners there faced paying £90 more each month, on average, than those renting, according to the findings.
Rising mortgage rates have been pushing up borrowers’ costs, but, as the housing market softens, there have been some indications of house prices coming off their previous record highs.
Kim Kinnaird, mortgages director Halifax, said: “our latest analysis shows that becoming a home-owner can bring significant savings for people. Of course, making the move from renting to home-ownership can be difficult for many, as raising a sufficient deposit and then finding the right property can be challenging. While a predicted fall in house prices this year will be welcome news for those looking to buy their first home, it doesn’t change the fact that getting on the property ladder remains expensive – a problem that is compounded when rents are high, impacting the ability to save.”
Here is the average monthly cost of owning a home, followed by the average monthly rental payment, the monthly saving for owners compared with renters in percentage and cash terms and the annual saving for owners, according to Halifax (figures have been rounded):
– Scotland, £727, £918, 21%, £191, £2,295
– South West, £1,029, £1,237, 17%, £208, £2,492
– North West, £778, £922, 16%, £145, £1,737
– Wales, £735, £872, 16%, £137, £1,647
– London, £1,828, £2,074, 12%, £246, £2,950
– West Midlands, £839, £951, 12%, £112, £1,342
– Yorkshire and the Humber, £720, £802, 10%, £82, £980
– South East, £1,345, £1,474, 9%, £129, £1,550
– East Midlands, £843, £931, 9%, £88, £1,059
– North East, £628, £685, 8%, £57, £686
– Northern Ireland, £596, £620, 4%, £24, £288
– East of England, £1,212, £1,122, minus 8%, minus £90, minus £1,078
– UK, £971, £1,013, 4%, £42, £498
The number of new renters falls as more young people stay at home with their parents in the face of soaring costs and falling supply
The Hotel of Mum and Dad is still in high demand as the proportion of new tenancies going to first-time renters has fallen. Rising rents mean the share of young people leaving the family home and moving into rented accommodation has plunged, says Hamptons lettings agency.
Back in 2015 so-called ‘first-time renters’ made up 6.1% of all tenants who moved into a new home, which equated to 71,860 new rented households in England. However, Hamptons says that during the first five months of 2023, that figure has fallen to 4.6% which equates to around 43,280 new rented households in England this year.
The agency says that had young adults continued to move from the family home into rental accommodation at the same pace as they did in 2015, it would mean there would be an extra 104,550 households looking to rent in England between 2016 and 2023. The reason for the tumbling numbers is likely to be easy to spot - money.
As the average rent paid by someone leaving the parental home passes £1,000 pcm for the first time, the average would-be tenant in Britain is set to save £12,290 by continuing to live rent-free with parents this year. In total, this will save would-be first-time renters in England a total of £1.3 billion in rent in 2023.
Those who left home paid an average of £1,024 pcm on their new place so far in 2023 says Hamptons up from £925 pcm in 2022. Young adults living at home in the South of England are less likely to become new renters than those in the North.
So far this year, those leaving the parental home made up 5.4% of all renters in the North of England - that is, North East, North West and Yorkshire & The Humber - compared to 3.7% of those renting in the South of England (London, East, South East & South West).
While the share of tenants leaving the family home has risen in the North over the last year, tougher affordability has kept a cap on the number of would-be tenants doing the same in the South. But Hamptons says that despite rising rents, affordability has actually improved for young renters.
It says that according to government figures, the average pre-tax income of an 18 to 24-year old in the UK has risen 42% since 2015 to average £18,900. Meanwhile Hamptons data shows that the average rent on a single room has increased only 26% over the same period, with one-beds rising by 30%.
Aneisha Beveridge, head of research at Hamptons say,: “around 105,000 missing renters are relying on the hotel of Mum and Dad. The number of first-time renters has been steadily falling since 2015, pushed down by the spiralling cost of living and record-breaking rental growth which has stretched affordability to the edge of its limits. Young adults are staying at home for longer in order to save up, with some skipping the rental market entirely and going on to purchase a home instead.”