The cost of renting and buying is the same due to small falls in mortgage rates, according to Hamptons.

Typical mortgage rates of just over 5% for a first-time buyer with a 10% deposit means the average monthly mortgage payment of £1,328 is only slightly cheaper than the average rental payment of £1,356.

It compares to two years ago, when interest rates increased and renting became £48 a month cheaper than buying, according to the estate agent.

Cheaper to buy

For most of the past four decades, it has been cheaper to buy than to rent. In only 36% of the months since January 1987 has it been cheaper to rent than to buy.

Since January 1987, there have only been three occasions when renting has been cheaper than buying for someone purchasing a home with a 10% deposit across a 30-year mortgage term. During these three occasions, it was rising mortgage rates that pushed up the cost of buying rather than rents falling.

First, in the early 1990s, mortgage rates hit 15%, pushing the average monthly mortgage payment for someone with a 10% deposit up to £649, nearly double the cost of renting at £358. As interest rates fell, the trend normalised and buying became cheaper throughout the rest of the 1990s and most of the 2000s.

It wasn’t until around 2007 when banks raised rates on small deposit mortgages that the balance swung back in favour of renting again and remained that way until 2010.  

And finally, renting became cheaper than buying just after the ‘mini budget’ in 2022, when mortgage rates rose steeply.

Economic shocks

Aneisha Beveridge, of Hamptons, said: “Since the 1980s, it’s typically taken an economic shock for renting to drop materially below the cost of buying.  When this happens, it’s almost always driven by the cost of buying rising rapidly, pushed up by mortgage rates jumping for those with smaller deposits who are perceived to be riskier borrowers when prices may fall.  But we are now seeing the impact of the inflation shock unwinding.

“Relative to the cost of paying a mortgage, rents tend to be much less volatile. Typically, they’re tightly tied to both wages and inflation. This means that while they rarely fall, they also tend to rise more slowly unless general inflation escapes its 2% target. When this happens, rents are often driven up by the higher costs faced by landlords, like we saw in 2022 and 2023, ranging from higher mortgage payments to bigger bills from tradesmen.

“Should central banks perceive an emerging trade war as a growing threat to economic growth, it could create room for faster rate cuts.  This could translate into falling mortgage rates, potentially cutting the cost of both buying and potentially renting too. Given these costs form a large part of official inflation statistics, this would put material downward pressure on the headline inflation figure.”

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