Rent is cheaper than having a mortgage as rates rise

Renting a property in Great Britain has become more affordable than purchasing a home with a mortgage, as rising interest rates continue to push up monthly repayments for new buyers. Recent analysis shows that average rental costs now undercut mortgage payments, signalling a significant shift in the housing market landscape.

Rising mortgage costs outpace rents

According to data from Rightmove, the average advertised rent across Great Britain stands at £1,547 per month, while the average monthly mortgage payment for a new buyer is £1,670. This means renters are currently paying £123 less each month compared to those taking on a mortgage.

The mortgage calculation is based on an average property asking price of £373,971, with a two-year fixed interest rate of 5.35% recorded in April. It assumes a 20% deposit and a 30-year repayment term, reflecting typical conditions for first-time buyers or those purchasing new homes.

Impact on potential buyers

Colleen Babcock, Rightmove’s property expert, commented on the rapid increase in mortgage payments: “Mortgage payments have risen quite sharply in a short space of time for new buyers.” She added that it will be interesting to observe whether more prospective buyers opt to rent temporarily while interest rates remain elevated and the timing of any rate reductions remains uncertain.

Rightmove’s research highlights the swift rise in mortgage rates, with the average two-year fixed rate climbing from 4.24% in February to 5.35% in April. This sharp increase has contributed to the growing disparity between mortgage costs and rental prices.

Regional variations in affordability

Geographical differences are evident in the comparison between renting and buying. Scotland and the North East remain the only regions where mortgage payments are still generally cheaper than rents, largely due to lower property prices in these areas.

Conversely, London and the South East exhibit the largest gaps, driven by higher property values. In London, the average mortgage payment is £3,038 per month, compared with average rents of £2,676—a difference of £362. The South East shows a similar pattern, with mortgage payments averaging £2,155 against rents of £1,792, a £363 gap.

Other regions such as the East of England and the South West also show significant differences, with mortgage payments exceeding rents by £304 and £299 respectively. Meanwhile, the North West displays a much narrower gap of just £7.

Local authority disparities

More than two-thirds of local authority areas now have renting as the cheaper option, a notable increase from around one-third in February. Westminster leads with the largest difference, where mortgage payments exceed rents by £1,290, followed closely by Kensington and Chelsea at £1,249.

On the other hand, some areas like Midlothian, Sefton, and Glasgow City still show mortgage payments lower than rents, with differences of £391, £368, and £325 respectively. Aberdeen City and Barking and Dagenham also report lower mortgage costs compared to rental prices.

What this means for landlords

The current market conditions present both challenges and opportunities for landlords. With renting becoming more affordable relative to buying, demand for rental properties may increase, particularly among those who might otherwise have considered purchasing. This could lead to greater tenant interest and potentially lower void periods.

However, landlords should also be mindful of regional variations and the potential for shifts in demand as mortgage rates fluctuate. Areas where mortgage payments remain lower than rents might see less rental demand, while regions with significant cost gaps could experience heightened competition for rental properties.

Source: Based on reporting from Property118

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