Buying can be cheaper than renting – but only if you can raise a £32,400 deposit

A buyer of an average two bedroom home would need a £32,400 (24 per cent) deposit to make the monthly costs of owning lower than renting, despite the lowest interest rates on record, according to research from leading residential agent, Hamptons International.

Comparing the monthly mortgage costs of high loan to value (95 per cent LTV) mortgages, typical of first time buyers, with rents shows that buying a two bed property in England and Wales is 11 per cent (£900pa) more expensive than renting it.  Using this simple comparison of monthly rent to mortgage costs, renting is cheaper than buying at high LTV in almost every region of England and Wales.  Only in the North East and North West is renting more expensive.

Source: Hamptons International; assumes a 95% LTV repayment mortgage on a 2 bed home at a 5% interest rate

An individual’s choice of tenure, whether to rent or buy, depends on having sufficient income to service a loan, but also crucially on the amount of deposit available. In order to understand this affordability ‘tipping point’ between tenures, Hamptons International calculated the size of deposit required to make average monthly outgoings on buying lower than average rents on a similar property.

Across England and Wales, the tipping point is at a 24 per cent deposit, equivalent to £32,400, and monthly mortgage and maintenance payments of £669.  This compares with average monthly rental payments of £683 on a similar property.  The biggest percentage deposit required for the scales to tip in favour of buying is 29 per cent in the East Midlands. Perhaps surprisingly Londoners need a smaller percentage deposit at 22 per cent, but this is because rents are higher in the capital. However, at £57,200 in cash terms, this deposit far outstrips the amount needed anywhere else to tip the scales towards buying. In contrast, the smallest deposit required is in the North East, where a £17,160 deposit (equivalent to 25 per cent) means cheaper monthly outgoings for buyers over renters in the area.

Source: Hamptons International; comparison of average price and rent of a 2 bedroom property by region.  Assuming 25 year repayment mortgage and £2,000 per annum maintenance costs for buyers

Fionnuala Earley, research director at Hamptons International, commented:  “There are difficult choices to make in today’s housing market. On the one hand improving credit conditions and government help have made buying more accessible. On the other, relative to buying renting is still cheaper for many, particularly young, people. Indeed, our research shows that renting is cheaper than buying with a 95 per cent LTV mortgage in all but two regions of England and Wales.”

“There is an affordability ‘tipping point’, where for a particular deposit size the balance of costs tips in favour of buying.  For England and Wales, the scales tip at a 24 per cent deposit, equivalent to about £32,000.”

“A sizeable deposit is the key to keeping mortgage costs low, but this has to be weighed against the several years it takes to save up. For many the advantages of renting outweigh this, particularly in the years when mobility is essential for career progression.”