More than half of people buying their first home in the UK now pay more each month on their mortgage than they previously paid in rent, according to research by estate agent Hamptons. The finding points to a change in the immediate financial calculation for renters considering a move into ownership.
Hamptons found that 56% of first-time buyers in September faced mortgage payments above their previous rent, the highest proportion in at least a decade. The average difference was £39 a month. The comparison concerns recent buyers who had been tenants, rather than every homeowner or every mortgage borrower.
The findings come with average fixed mortgage rates close to 6%. Moneyfacts figures reported by the Guardian put the average five-year fixed rate at 5.99% on Monday morning and the average two-year rate at 5.96%. The five-year average crossed the 6% threshold earlier this month for the first time in three years.
Monthly saving has largely disappeared
Aneisha Beveridge, Hamptons’ head of research, said low interest rates had once made the financial case for tenants to buy as soon as they could relatively straightforward. Higher mortgage rates had turned that equation on its head, removing much of the immediate saving that previously rewarded the move out of renting.
She said the longer-term advantages remained: buyers can build equity, gain greater security and eventually own their home outright. Those benefits are different from a reduction in the amount leaving a household’s bank account each month. The research shows that many recent buyers are not getting that immediate reduction.
Mortgage payments and rent also serve different purposes. A repayment mortgage includes interest and money used to reduce the outstanding loan, while rent does not buy an ownership stake. The Hamptons comparison measures monthly payments; it is not a calculation of total lifetime costs or the eventual value of the home.
Buyers in their 40s experienced the largest increase. Hamptons found that 67% of first-time buyers in that age group took on mortgage payments above their previous rent. Their monthly mortgage costs were 18% higher on average, showing that the move into ownership did not necessarily bring a smaller bill even for people buying later in life.
Renters face rising costs too
The pressure is not confined to mortgages. Newly agreed rents across Great Britain increased by 2.7% in September compared with a year earlier, the fastest annual growth in almost two years. The average rent on a new let reached £1,433 a month, up from £1,396 in September last year.
In Greater London the average new-let rent was £2,357 a month, an increase of 1.5%. The strongest growth was in the south of England, where rents rose by 3.7% to an average of £1,419. These are figures for newly agreed tenancies, not the monthly amount paid by every renter in those areas.
Beveridge said increases so far this year had mainly been felt by tenants moving home. If growth continued, it could feed through to more existing tenants as the gap between newly agreed rents and existing rents widened. Her warning distinguishes present evidence about new lets from what might happen to households staying in their homes.
Higher mortgage costs and higher rents therefore sit alongside one another. The national average new-let rent cannot simply be compared with an individual first-time buyer’s mortgage to decide which tenure is cheaper. Hamptons’s main finding compares the same buyers’ new mortgage payments with the rent they had previously paid.
Borrowing costs change the calculation
The Guardian reported that volatility in bond markets since the outbreak of the Middle East war had pushed up swap rates, which influence lenders’ pricing of fixed mortgage deals. That market pressure provides the context for average fixed rates approaching 6%, rather than evidence that every borrower will receive the same rate.
A household’s payment also depends on its deposit, the amount borrowed and the mortgage term. Buying involves costs beyond the monthly loan payment, including maintenance and transaction expenses. Those considerations are not all captured by the £39 comparison, just as the research does not predict future house prices or the cost of a later mortgage deal.
The September data nevertheless challenge the assumption that buying automatically reduces monthly housing costs. For most recent first-time buyers in the research, ownership began with a higher payment than renting. The long-term prospect of building equity remains, but it is now accompanied by a more demanding immediate household budget for many purchasers.
