Is renting cheaper than buying in 2021?

New data from lettings firm Hamptons suggests it is currently cheaper to rent a home than to buy at higher LTV's. ;

According to analysis by lettings firm Hamptons, it is now cheaper to rent a home than to buy at a high loan-to-value (LTV).

This is the first time that this has been the case since December 2014.

To rent or to buy

The data shows that in May the average tenant in Britain spent £71 less per month than if they were repaying a 90% LTV mortgage on the same home.

The comparison shows a monthly average of £1,054 on rent, compared to £1,125 on mortgage payments.

From first glance, it looks as though a combination of the pandemic driving up interest rates, inflated house prices and higher LTV mortgages could be the cause.

The data from before the pandemic shows that, in March 2020, a buyer with a 10% deposit would have been £102 per month better off buying than renting.

Regional variance

Across the UK there are only four areas where it is cheaper to buy than to rent. These are the North East, North West, Yorkshire & Humber and Scotland.

London has seen the largest shift since before the pandemic.

A buyer putting down a 10% deposit on a property, will have gone from being £123 per month better off buying in March 2020, to spending £251 per month less on rent in May 2021.

Aneisha Beveridge, head of research at Hamptons, said: “The pandemic has reversed a six-year trend which now makes it cheaper to rent than buy a home.

“A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether.

“For first-time buyers in particular this pushed up the cost of paying a mortgage, if they could get one at all, to well above the cost of renting.”

Mortgage guarantee scheme

This data also took a look at how the new mortgage guarantee scheme loan to values have affected the numbers.

Announced in the March budget, the mortgage guarantee scheme is a government-backed initiative aimed at getting new homeowners onto the property ladder. It also aims to provide lenders with confidence, when giving mortgages to those with smaller deposits.

As of the start of May, there were over 112 residential mortgage deals needing just a 5% deposit, according to Moneyfacts. This is three times as many that were available in April, at just 34.

For buyers using a 5% deposit, renting becomes even cheaper when comparing monthly payments.

A buyer putting down a 5% deposit will on average spend £195 per month more than if they had carried on renting.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.