Renting can still be more expensive than buying, despite the increasing cost of borrowing currently hitting homebuyers across the property market, says brokerage service Revolution Brokers.
They looked at the current cost of buying, both with respect to a full mortgage repayment and an interest only repayment plan, and how this cost compares to those renting in the private rental sector.
The research shows that the average tenant across the UK is currently paying £1,143 per month to rent within the private rental sector.
It also shows that for the average homebuyer looking to buy with a variable rate mortgage at a 75% loan to value and an average rate of 4.45%, the cost of a full mortgage repayment comes in at £1,223 per month, marginally more than the cost of renting.
However, those who are only making interest-only payments on their mortgage each month are currently paying an average of £829 per month – 27.5% 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 even when repaying a mortgage in full, it’s still less than 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. This is 47.1% and 43.9% lower than the cost of renting within the private rental market.
Almas Uddin, Founding Director of Revolution Brokers, comments: “The fact that it still works out cheaper to repay a mortgage on an interest only basis versus the cost of renting, probably says more about the inflated state of the private rental market than it does current mortgage affordability.
“Even if mortgage rates do climb to a lofty 6%, 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.
“However, for those that can manage to overcome this initial hurdle, it remains far more worthwhile to buy versus renting, even in current market conditions.”