Buy or Rent - buying a home remains cheaper than renting

New findings by Revolution Brokers suggest that despite the increasing cost of borrowing, buying is less expensive than renting. 

The analysis was conducted by analysing the current cost of buying a full mortgage repayment and an interest-only repayment plan. Then the cost was compared to those still residing within the private rental sector. 

The cost homeowners and tenants pay

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

The average homebuyer hoping to buy with a variable rate mortgage at a 75% loan to value and an average rate of 4.45%, would pay £1,223 per month.

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

Three and two year fixed rate products have full monthly repayments of £1,075 and £1,098. Therefore, this is a more affordable option compared to renting at £1,143 per month. 

Interest-only mortgages with a three-year fixed rate would cost £604 per month while a two year fixed rate would total £641 monthly. Both totals are over 40% lower than the cost of renting within the private rental market. 

A 75% loan-to-value mortgage at an average mortgage rate of 6% would result in a £1,412 monthly repayment. The monthly cost of repaying this mortgage on an interest-only basis is £1,095 per month. Overall this is 4.2% less than the average cost of renting. 

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.”