Although buying a property remains 13 per cent more cost-effective than renting, the gap is narrowing as house prices are on the rise again, according to the latest research by property search website Zoopla.co.uk.
One year ago, renting in the UK was £993 per year on average more expensive than servicing a mortgage, but this gap has now come down by 3.2 per cent to £961 today. As a result, the proportion of towns and cities across the UK where it is cheaper to buy than rent has fallen from 90 
per cent to 86 per cent over the past twelve months.
The main cause of the narrowing gap has been that house prices have climbed at a faster pace over the past year than rents with the cost of renting a two-bedroom flat across Britain is now £84 (1.1 per cent) more expensive on average than last year, whereas the cost of servicing an interest-only mortgage on a typical two-bedroom flat has risen £120 (1.7 per cent) on average.
Despite the narrowing gap, it is still 13 per cent cheaper to own than to rent. The average rental payment on a typical two-bedroom flat is £8,006 per year, compared to £7,045 per year to service an interest-only mortgage at a 5 per cent rate. Using a 90 per cent LTV interest-only mortgage at a typical Best Buy rate of 4.39 per cent, the rental premium is even higher with the average mortgage at £126,817 and interest of £464 per month, saving an owner £2,439 a year (not including cost of deposit).
Weaker house price growth in the north has meant that northern towns dominate the list of places where it is cheaper to buy than rent with York topping the list and where tenants pay a £3,326 (42 per cent) annual premium over owners.
Higher property prices in the south have led to a number of places where it is cheaper to rent instead of buying with Plymouth topping the list and where tenants in the seaside town pay £845 (15 per cent) per year less than owners on average. Despite the high rents in London, property price rises over the past year in the capital have now made renting 6 per cent more cost-effective than buying.
Lawrence Hall of Zoopla.co.uk said: “Buying remains significantly more cost-effective than renting, but the gap is closing. With increased mortgage availability buyer demand is rising, especially amongst first time buyers, whilst rental demand is falling so house prices are generally rising faster than average rents, although it is clear that large regional differences still exist.”
