In September 2021 it was cheaper to buy a home in all regions of the UK with mortgage repayments being, on average, lower than rent.
But despite rising rental costs over the last few years, rising mortgage rates have helped buck the trend.
According to the Intermediary Mortgage Lenders Association (IMLA) the only areas of the UK where buying remains the cheaper route are the North West, Scotland and Northern Ireland.
IMLA has published these findings as part of a report, The mortgage affordability paradox. It calculated mortgage interest costs versus the average rent in each region based on the purchase of an average priced first-time buyer property using a 95% loan-to-value (LTV) mortgage.
It did not take into account additional costs faced by buyers such as buildings insurance or repairs and maintenance.
Benefits of buying a home
Despite what IMLA has caused a ‘dramatic turnaround’ in the rent versus buying costs comparison, there are still incentives for people to buy a property.
These calculations were based on someone taking out a 95% LTV mortgage, and those who have higher deposits will be able to access lower rates.
What’s more, whilst the report said the monthly outlay for new first-time buyer was likely to be higher than for renters, buyers could lock themselves into a fixed-rate mortgage and guarantee a set cost. Renters, however, face the prospect of rent increases.
IMLA said, assuming no house price growth for the next 30 years, someone buying an average home, initially with a 25-year 95% LTV repayment mortgage, could be £352,000 better off than someone who continued to rent privately.
Mortgage rates would have to exceed 11.5% over the life of the loan before renting was as financially advantageous as buying.
Falling first-time buyer numbers
But first-time buyer numbers are still falling. IMLA said numbers had dropped sharply from 405,000 in 2021 to 257,000 last year.
IMLA also estimates the cumulative shortfall in first-time buyer numbers since the financial crisis reached 3.1m by the end of 2023
Despite strong affordability during the ultra-low interest rate years from 2013 to 2022, first-time buyer numbers failed to pick up to the level previous trends would have suggested.
It has attributed tough regulation put in place following the financial crisis as one of the reason for these falling numbers. This includes rules restricting lending at or above 4.5 times income as well as the need for higher deposits.
With interest rate rises added to this, challenges for first-time buyers have intensified.
Kate Davies, executive director of IMLA, said: “Homeownership brings a range of invaluable benefits to individuals and their families, not just in terms of the accumulated wealth it confers but the peace of mind afforded by security of tenure. It can also benefit wider society, helping to build settled communities.
She added: “IMLA believes that government can help future first-time buyers by examining the regulatory barriers to ownership. We believe that it would be beneficial for consumers if government were to establish a framework for regulators where the interests of future first-time buyers are explicitly recognized, with affordability regulations reassessed accordingly.
“Particular attention should be paid to the FPC’s LTI flow limit, under which lenders are restricted to offering no more than 15% of their mortgages at or above 4.5 times income, as this seems at odds with the rest of the affordability regime.”
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