Aspiring first-time buyers find themselves in a difficult situation due to rising rents and mortgage rates. Higher mortgage rates have made it more challenging to purchase a first home, while increasing rents limit the amount that can be saved for a deposit. Rightmove reports that the average five-year fixed mortgage rate is now 5.67%, up from 2.22% two years ago. If someone were to buy a £200,000 home with a five-year fixed mortgage and a 25-year term, they would have monthly loan payments of £1,249, compared to £869 two years ago.
However, renters are also facing financial strain. The average rent per property has increased from £1,029 to £1,261 over the past two years, according to HomeLet’s Rental Index. Rental affordability is currently at its lowest point in over a decade, with average UK rents accounting for 28.3% of pre-tax earnings, compared to the 10-year average of 27%, says Zoopla. It is predicted that rents will rise by 25% between the start of this year and the end of 2026, according to Hamptons.
In the past, low mortgage rates made buying much cheaper than renting for those who could afford a deposit. However, higher mortgage rates have caused home loan costs to increase faster than rents. Zoopla analysis shows that the typical monthly rent is now £122 cheaper than the mortgage repayments for an equivalent property, assuming a 15% deposit on a 30-year term with a mortgage rate of 5.6%. In the last 12 months, higher mortgage rates have increased a typical first-time buyer’s mortgage repayments by a third, whereas rents have only risen by 10.4% over the same period.
Zoopla’s senior property researcher, Izabella Lubowiecka, notes that renting has become cheaper than repaying a mortgage for first-time buyers for the first time in 13 years. However, the cost difference depends on the location and type of property. In six UK regions and countries, it is cheaper to buy than rent, including Scotland where average mortgage repayments are 17% lower than rental costs. On the other hand, all areas of southern England and the Midlands are more expensive to buy than rent, with London’s average mortgage repayment being 24% higher than the typical monthly rent.
Despite the affordability of renting, many first-time buyers continue to pursue homeownership due to the lack of security that comes with renting. The first-time buyer market remains buoyant as those with larger deposits, savings, or assistance from family members can still afford to buy. Others may choose to buy a property with a partner, friends, or family to make it more affordable. However, there are some who will wait for mortgage rates or house prices to fall further before making a decision.
While buying a property is a long-term investment that provides security and the opportunity to build equity, Nicholas Mendes, mortgage technical manager at John Charcol, advises first-time buyers to consider affordability, potential market downturns, and changing circumstances. He argues that property ownership is an emotional purchase and urges buyers to focus on finding a property that fits their needs and future aspirations, rather than trying to time the market.
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