A study has revealed that, following the recent base rate rise by the Bank of England, the cost of a mortgage has risen to the point where is it is now cheaper on a monthly basis to rent than to buy.
The conductors of the research, Hamptons estate agents, suggest that it has been cheaper over the last 11 months to buy a home with a 10% deposit rather than rent. In May, it was £40 per month cheaper to buy, while in November 2021 it was a staggering £160 cheaper.
However, it is now £1 per month more expensive to rent than it is to buy, despite rental growth hitting a record high of 11.5% across Great Britain in May.
For a buyer with a 10% deposit, the rate rise will add a further £41 to their average monthly mortgage repayment, taking it from £1,112 to £1,153. For buyers with a 5% deposit, it has nearly always been cheaper to rent than buy since the monthly mortgage costs are higher. However, yesterday’s base rate rise means it will cost £105 per month more to buy than rent, up from £59 in May 2022.
Hamptons say any future increase to the base rate of a similar scale will likely add a comparable amount to mortgage repayments. Each 0.25% rise in the base rate will push the cost of buying further above the cost of renting by £41 a month for a typical first-time buyer with a 10% deposit.
Aneisha Beveridge, head of research at the firm, said:
“Rising interest rates are set to swing the scales for would-be first-time buyers. This is a reversal of pre-pandemic times when the average buyer saved nearly £800 a year by owning rather than renting.
Over the next year or so we expect several further small interest rate rises, with mortgage rates set to peak around the middle of 2023, which will add to the cost of buying in cash terms.
We also expect rental growth to slow later in the year as rising living costs squeeze affordability. By this point it will mean that for new buyers with smaller deposits, the monthly cost of purchasing a home will be significantly higher than renting one.”
