Cheaper to rent than buy UK homes after Iran war sparks surge in mortgage rates

New data reveals that renting a house in Britain has become more affordable than buying a home as mortgage rates rise in the wake of rising tensions in the Middle East.

For the first time since June last year, the typical monthly payment for a new mortgage now exceeds the average cost of rent, according to analysis by property portal Rightmove.

The report shows that the average monthly rent advertised across England is £1,547.

This is £123 less than the average new monthly mortgage payment of £1,670.

Rightmove’s mortgage calculation is based on the average asking price for a house of £373,971, and also takes into account the average two-year fixed interest rate observed in April.

We also assume that the buyer puts down a 20 percent deposit and opts for a 30-year repayment term.

The main reason for this significant change is the increase in borrowing costs since the beginning of March, which coincided with the intensification of conflicts in the Middle East.

The resulting financial market volatility increased the interchange rates that lenders use to price mortgage products, leading many to withdraw a number of deals from the market.

As a result, Rightmove said the average two-year fixed mortgage rate rose to 5.35% in April from 4.24% in February.

However, in the last few days a group of banks and building societies have cut interest rates in a sign of a more positive mood entering the market.

Rightmove’s property expert Colleen Babcock said: “Mortgage payments for new buyers have risen quite sharply in a short period of time.

“It will be interesting to see whether more buyers will turn to renting temporarily while prices remain high, especially at a time when monthly costs can exceed average rents and the timing of interest rate cuts is still uncertain.”

Rightmove’s analysis shows that renting is cheaper on average than mortgages across England, but this is not the case in Scotland and the North East, where it is cheaper to buy.

The gap between rents and mortgage payments also varies significantly across different parts of Britain.

The average monthly rent in the South East is £304 less than the average mortgage payment. This works out to £362 in London.

By comparison, renting in the North West is £7 cheaper than buying, according to the analysis.

In addition, factors such as buying a house with a higher deposit, borrowing less from the bank, or spreading payments over a longer period can also reduce monthly mortgage loan costs on an individual basis.

Propertymark chief executive Nathan Emerson said: “This shift underlines the wider economic pressures facing consumers, where affordability challenges are being felt at both the rental and purchase stages.

“While renting may appear relatively cheaper in the short term, this does not necessarily mean it is more affordable overall, especially as renters continue to manage living costs and limited housing supply.”