Soaring mortgage costs make it almost as dear to buy as to rent

New research shows that there’s little to choose between the costs of renting and owning - a change from previous research which showed renting as more expensive.

Revolution Brokers looked at the current cost of buying on a repayment mortgage repayment and an interest-only alternative, and how these compare with rents.  

The research shows that the average tenant across the UK is currently paying £1,143 per month to rent privately.

However, for the average homebuyer currently looking to buy with a variable rate mortgage at a 75 per cent loan to value and an average rate of 4.45 per cent, the cost of a full mortgage repayment comes in at £1,223 per month, marginally more than the cost of renting. 

Those who are only making interest only payments on their mortgage each month are currently paying an average of £829 per month - 27.5 per cent less than the current cost of renting. 

The same homebuyer opting for a three and two year fixed rate product would be facing a full monthly repayment of £1,075 and £1,098 respectively, meaning that when repaying a mortgage in full, it still comes in as a slightly more affordable option versus renting at £1,143 per month. 

For those repaying their mortgage on an interest only basis, a three year fixed rate would see them paying £604 per month, while a two year fixed rate climbs to £641 per month. Again, this is 47.1 and 43.9 per cent lower than the cost of renting within the private rental market. 

But with the average mortgage rate predicted to hit 6.0 per cent, could renting soon become the better option? 

Well the same 75 per cent loan to value mortgage at an average mortgage rate of 6.0 per cent would see you making a £1,412 full monthly repayment. However, the monthly cost of repaying this mortgage on an interest only basis would still only reach £1,095 per month, still 4.2 per cent less than the average cost of renting. 

Revolution Brokers director Almas Uddin says: “Even if mortgage rates do climb to a lofty six per cent, the interest only payments when borrowing to buy would still be less than the cost of renting and while you won’t be chipping away at your outstanding mortgage balance, you will own your own home rather than lining the pockets of a landlord. 

“Of course, while the scenario of an interest only mortgage payment versus paying rent is a similar one, the cost of securing a rental property via a rental deposit is a far easier task financially when compared to the cost of a mortgage deposit.”