Buy or Rent - which one costs you more?

It’s always going to be a question for first-time buyers and sometimes even for those looking to relocate or just to make their next move. Is it going to be cheaper to buy or rent?

So, what’s the best thing to do?

Whether mortgage payments or rent costs more in the UK can really vary based on location and other individual factors.

And while buying with a mortgage can normally be financially advantageous over time – assuming property values appreciate and mortgage interest rates remain competitive – it’s simply not as flexible as renting.

All of our personal circumstances differ and deciding whether mortgage payments or rent costs more is going to be down to a number of reasons.

Location, Location, Location

As ever, location is the number one factor determining how much you pay in rent, or how much property costs to buy. But then there are other issues to take into consideration such as property type, current market conditions and of course mortgage and interest rates.

As an example, new analysis from Rightmove reveals that Aberdeen is the cheapest city to be a first-time buyer.

The average asking price for a typical first-time buyer type property (two bedrooms or fewer) in Aberdeen is currently £102,60, with the average monthly mortgage payment now £406 per month.

Bradford is the second cheapest city to be a first-time buyer, with an average asking price of £107,929 and Sunderland is the third cheapest, at £111,263.

Meanwhile, Carlisle is the cheapest place to be a renter, with the average advertised rent for an equivalent two-bedroom or smaller property now £607 per month.

And at the other end of the scale, Oxford is the most expensive city outside of London to be a renter, with an average two-bedroom or smaller home currently advertised at £1,561 per month.

Data from UK Finance shows that the average deposit size in Scotland and Wales is 20%, while in England it is 25% and that more first-time buyers are choosing longer repayment terms to improve their affordability.

According to Rightmove the average monthly mortgage payment for a typical first-time buyer type property in Great Britain (two bedrooms and fewer) is £53/month more than this time last year, vs £81/month for renters.

And the same data shows that the cost of renting a two-bedroom or smaller home has increased by 39% in the last five years, versus a 19% jump in the cost of buying a two-bedroom or smaller home.

What are the pros and cons to consider when deciding to buy or rent?

There’s always going to be pros and cons with either choice so here are some of the basics to consider whether you’d be better off buying with a mortgage or renting.

Lifestyle

Stability vs. Flexibility

Buying a property offers stability and long-term security and can provide a sense of ownership and the ability to customise and settle down in one place.

Whereas on the other hand renting offers flexibility, making it ideal for those who prefer to remain mobile or uncertain about their long-term plans, allowing for easier relocation and less commitment compared to buying.

Mortgage Payments

Initial Costs

When buying a property with a mortgage, you typically need a deposit (often at least 5-10% of the property's value), plus additional fees such as stamp duty, legal fees, and survey costs.

Monthly Payments

The monthly mortgage payments depend on the size of the mortgage, the interest rate, and the term (say, 25 years). Mortgage rates can be fixed or variable, affecting monthly payments.

Ownership Benefits

Over time, as you pay off the mortgage, you build equity in the property and benefit from potential capital appreciation.

Rent Payments

Initial Costs

Renting typically involves paying a security deposit upfront (usually equivalent to four to eight months’ rent and more) along with potential agency fees.

Monthly Payments

Rent payments are fixed for the duration of the tenancy agreement (usually six or 12 months) and cover the landlord's mortgage payments (if applicable), property maintenance, and potentially other costs.

Comparison

Location

In some areas of the UK, particularly major cities like London and Manchester, rent can be higher than mortgage payments due to high demand and limited housing supply. In other areas, mortgage payments may be comparable to or lower than rent.

Property Type

The type of property (whether it’s a one-bedroom or two to three-bedroom flat, a two-up two down, semi-detatched or detached house etc) and its size will have an impact on both mortgage and rent costs. As a rule of thumb, larger or more desirable properties often command higher rents.

Interest Rates

Mortgage interest rates will change over time – even for those starting out on a short 2-year fixed rate. After those two years your rate is going to change one way or the other. Low interest rates can make mortgage payments more affordable, while higher rates increase the cost of borrowing.

Market Conditions

In a competitive rental market, landlords may charge higher rents. Conversely, in areas where property prices are more affordable, mortgage payments can be lower relative to rent.

What Matters to You?

Long Term Costs

Over the long term, mortgage payments may offer greater financial stability and the potential to build equity, while rent payments provide flexibility but the property will, in most instances, never be yours.

Affordability

Affordability varies depending on individual financial circumstances, including income, savings and credit history.

Market Trends

Before making the decision whether to buy or rent it’s important to look at local trends – what’s happening to property prices in the area that you want to live?

Rental yields for landlords and market trends will determine whether buying or renting is more cost-effective in a specific area.