Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.

Detailed research* from Experian shows that rental payments are catching up with and even surpassing typical mortgage payments for first-time buyers, but in the third quarter of 2016, 84% of UK districts still have rents which are higher than mortgage payments.

And with inflation predicted to hit 4% in 2017, mortgage payments are set to rise further over time.

The rising rents trend following buy-to-let tax rises was perhaps predictable, but Experian’s ‘First-Time Buyers Index’ has confirmed it, with private tenants paying more for their accommodation in 57% (217) of districts during the third quarter of this year, compared to the same period in 2015.

On the other hand, successive interest rate falls means that monthly mortgage re-payments first-time buyers are paying has dropped in 65% of UK districts, this is assuming the loan was for 90% of the property’s value on a two-year fixed rate mortgage over 25 years.

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The amount tenants are paying for accommodation is very close, either above or within 10% of the monthly mortgage payments in 27% of UK districts (103), though the question is, how long will mortgage rates remain so low.

10 of these districts are in Scotland where six of these have rental rates exceeding monthly mortgage payments by the greatest margin. Also, Manchester, Salford and Hull in the North of England offer among the most favourable conditions for renters to become first-time buyers.

Jonathan Westley of Experian says:

“What our research shows is that while a mortgage is a major on-going commitment, renters often have a track record of making monthly payments which are often similar to what they might pay on a mortgage.

“Lenders already apply rigorous checks to assess whether mortgage payments will be affordable for would-be homeowners, following the Mortgage Market Review. However, by taking rental payments into account, lenders can get a more complete picture of a borrower’s financial track record and make more suitable lending decisions.”  

Table 1: Rent and mortgage payment comparisons in UK for Q3 2016

      Number of districts % of districts
Cheaper to rent than buy 321 84%
Cheaper to buy than rent 51 13%
Rental payments – increased 217 57%
Rental payments – decreased 66 17%
Rental payments – no change 100 26%
Mortgage payments – increased 119 31%
Mortgage payments – decreased 248 65%
Mortgage payments – no change 16 4%
Rent & Mortgage – Both Increased 80 21%
Rent & Mortgage – Both Decreased 50 13%
Rent Increased, Mortgage Decreased 137 36%
Mortgage Increased, Rent Decreased 16 4%


Table 2: Top 10 districts where rental payments exceed mortgage payments by % difference

District £s Difference rental v mortgage payments % Difference rental v mortgage payments Median Rental Payment Median Mortgage Payment
Overall -£113 -13% £885 £998
Glasgow City £179 28% £650 £471
North Ayrshire £111 25% £450 £339
Merthyr Tydfil £116 24% £475 £359
North Lanarkshire £112 24% £475 £363
West Dunbartonshire £106 22% £485 £379
Dundee City £101 20% £500 £399
Manchester £156 20% £795 £639
Falkirk £81 17% £475 £394
Salford £116 17% £695 £579
Hull £76 16% £475 £399 

*For the purposes of this research, it is assumed that a first-time buyer would take a two-year fixed rate mortgage with a 90% loan-to-value ratio over 25 years. Mortgage rates are taken from the Bank of England at the end of each quarter.

Jonathan Westley is Managing Director of Consumer Information Services at Experian.

Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.


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