2024’s UK housing dilemma: to mortgage or rent?

According to a data analysis by Finbri, for the first time since 2010, renting a home is now more cost-effective in almost all regions of England and Wales, except for the North West!

Whilst over 83% of people renting want to own a property in the future, renters should be aware of the recent shift that they are now paying less per month for their homes than people with a mortgage.

So why choose to rent over getting a mortgage in today's market? Here are the three key reasons:

1. Simply, renting is currently the cheaper option

On average, in England, renting is cheaper than owning by around £290 per month, meaning homeowners with a mortgage currently pay £3,480 more per year than renters.

While rental costs are also on the rise, their increase is not as steep as mortgage costs. In the 12 months to October 2023, private rents increased by 6.1%, while the average mortgage payment increased by 33%.

So for the time being, looking at monthly mortgages vs rent, renting is the more affordable option.

2. Decline in house prices

The housing market is experiencing a slowdown, with a 1.8% decline in house prices during 2023 - the most significant drop since 2009. Despite previous years of property value growth, recent trends and short-term future predictions indicate market stagnation.

So if you can get on the property ladder, mortgaging a home now carries the very real risk of negative equity - where a property is worth less than its mortgage - which is a serious problem if you need to sell.

3. House deposit difficulty

Even though there was a decline in property prices in 2023, saving for a deposit to get on the property ladder remains a massive hurdle.

Last year, the number of new first-time buyers with a mortgage fell to the UK's lowest level in a decade. According to the latest figures, there were 290,000 first-time buyers with a mortgage last year, a sharp decline from 2022’s total of 370,000.

For home buyers substantial deposits are a common requirement, often ranging from 10% to 25% of the total purchase price (the average deposit for a house in the UK as of 2023 is £28,982). This amount can be difficult to save, particularly during a cost of living crisis, making renting a more accessible option.

In an attempt to appeal to younger voters, the government is said to be considering ‘99% mortgages' for first-time buyers. But this idea has been warned against by property industry experts fearing another house price bubble and exposing borrowers to unmanageable debts.

Stephen Clark, founder of Finbri, a bridging and property development finance broker, comments: ”There have been many challenges in the housing market over the past couple of years. This ranges from the disastrous mini-budget, rising inflation, a 14-month run on base rate hikes, and regulations that have destabilised both renters and those who own mortgaged properties. The adage that owning is better than renting is really being challenged for the first time - in a long time.”

While renting currently proves more cost-effective in most regions of England and Wales, the factors affecting renters and buyers are complex. England’s 212,570 homes built in 2022/23 is still woefully short of the 300,000 new homes needed each year, compounding a decades-long housing supply and demand imbalance. The housing shortage in Wales is even worse, where less than 40% of 7,000 new homes needed last year were built.

Future economic challenges and government policies will continue to shape the conversation around what people will call home. The significant shift where renting is more financially beneficial than mortgaging is just the latest surprise in the saga that is the UK’s housing market.