Is it cheaper to buy a house or rent? Property experts give their verdict – as it’s harder than ever to get a home

PAYING for somewhere to live each month is the biggest bill that most of us have to foot.

But there can be a big difference in exactly how much this cost is, depending on whether you have a mortgage or pay rent.

There are pros and cons to owning, as well as renting a home.

Being a tenant can offer flexibility if you don’t want to be tied to an area for a long time.

When you rent a home, it is the landlord’s responsibility to fix appliances that break down or replace items that have become worn over time which can take away some of the responsibility of upkeep on a property.

However, the amount of aesthetic changes you can make to a home are often quite limited.

You may also be restricted on other things such as whether you can own a pet.

The cost alone of renting or buying a home changes over time and often depends on the wider economic backdrop.

However, right now experts say it is harder than ever to get on the property ladder.

Here experts take a look at the current price of both and give their verdict…

MORTGAGE COSTS

There are many different factors that will impact the individual price of a mortgage, but the average cost is largely driven by interest rates.

After more than a decade at rock bottom, the Bank of England started raising rates in 2021 where they peaked at 5.25% last year.

Interest rates were last month cut to 5% but, by recent standards, they’re still pretty high.

In turn this helped push up the cost of mortgages making home-owning more expensive than it was just a few years ago.

For example, the average two-year fixed rate mortgage now stands at 5.53%, according to Moneyfactscompare,co.uk down from 5.94% in May.

However, in September 2021 the average rate was just 2.38%.

It means that on a £200,000 mortgage with today’s typical 5.53% rate, you can expect a repayment cost of £1,231, whereas in 2021 the same mortgage bill would have typically cost £885.

THE COST OF RENTING

In comparison to mortgages, the main driver of renting prices is demand.

Even if a landlord’s mortgage costs are going up, it is more difficult to raise prices if there is little demand.

On the other hand, more demand means prices will steadily increase.

After the financial crash in 2009, mortgage rules were made much more stringent making it more difficult for buyers to get on the ladder.

Housebuilding has been well below needed levels for many years, which has helped to sustain demand for homes in turn increasing prices.

These factors have left more people renting, helping to push bills sky high.

Property website Rightmove recently found that the average monthly mortgage payment on a typical first-time buyer type property when taking out an average five-year fixed, 85% loan to value mortgage, is now £1,109 per month.

The average cost of rents reached £1,316 a month in July, according to Rightmove.

On face value this makes the cost of renting more expensive than buying.

Many experts agree that buying a home is usually cheaper than renting.

Ben Perks, managing director at Orchard Financial Advisers said: “Renting is expensive and doesn’t give people long-term security.

“Even with the higher interest rates we are currently seeing, it often works out cheaper month on month to buy a property, especially for youngsters.”

Elliott Culley, director at Switch Mortgage Finance, added: “Most first-time buyers I deal with end up paying less per month on a mortgage to the amount they were paying on rent.

“There are upfront costs, such as solicitor costs, but buying a property is cheaper longer term in the majority of cases.

“Not only is it cheaper long term, all your payments are reducing your overall loan and increasing your equity. It also provides long-term security as you are in full control of where you live and for how long.”

LOCATION, LOCATION, LOCATION

Weighing up the exact cost of owning, as well as renting a home is heavily dependent upon your location with supply versus demand in the area having a huge impact.

Generally, speaking demand for renting is higher in cities and the south of the country.

For example, the typical rent in London is a whopping £2,652 a month, according to Rightmove.

Therefore, buying in these locations can often be more affordable than renting – even after factoring in higher house prices.

Earlier this year, Halifax analysis showed that the monthly cost of owning a first home compared to the equivalent rental cost, was higher in nine out 12 UK regions or nations last year.

The only regions where it’s cheaper to own rather than rent, are the South West, London and Scotland, according to the lender

Regionally, renters were making the biggest savings compared to first-time buyers in the East of England, according to the research.

The type of house you are looking to buy or rent can also make a big difference depending on demand.

It means that to accurately weigh up the costs of whether it’s cheaper to buy or rent, you will need to look at the price of a property and work out how much your monthly repayments would be.

Then look at rents for a comparable property in the same region.

Simon Bridgland, director at advisers Release Freedom, said: “The location will make all the difference on what’s more achievable.

“But deposits aside, buying your own home is still the cheaper option and offers a more secure roof over your head, compared to rental property and fragile rental agreements”

LONG TERM COSTS

Comparing the cost of renting versus owning is not just about current costs – you also need to consider the long term.

Over time, mortgage costs go down – even with changing interest rates – as you pay off more of the loan. When you have paid it off completely, you will no longer have any housing costs to consider which can leave you considerably better off.

When you rent, your bills are only likely to increase as landlords raise the costs every year.

Rather than the money paying off your own mortgage, you are paying off someone else’s mortgage. At the end of the term, they will own the property – not you.

If you only ever rent, you are unlikely to ever get rid of your housing costs.

Kim Kinnaird, mortgages director, Halifax said: “We know home ownership can offer long term financial and living stability and that’s why we believe it’s an important step to take.”