saleA new report says the average cost of paying off a mortgage is now £120 a month cheaper than paying rent. But is it that simple?

A combination of plummeting mortgage costs and soaring monthly rents has meant that buying a home is now on average £120 cheaper than renting across the UK – and the gap has widened in the last year.

According to Halifax, the monthly costs associated with buying a three-bedroom house are now 16% lower than renting one, and this has risen from 14% in 2011.

Average mortgage costs are £621 a month, compared to typical monthly rent of £741, says the bank. Over a year this amounts to a healthy saving of £1,140 for homeowners.

Of course, UK averages belie a wide disparity in both house prices and rents across the country. In Yorkshire and the Humber for example, average monthly buying costs are just £1 lower than average monthly rental costs (£482 against £483).

At the other end of the scale, in London, buying is far more affordable than renting, at £1,101 compared to £1,294, a monthly difference of £193.

On the face of it, buying looks like a smart option for the financially savvy, but is that really the case?

What about the deposit?
What the figures don't include is the deposit needed to get onto the housing ladder in the first place. In fact, on checking the small print I discovered that the study works out the cost of paying a mortgage based on an average 73% loan-to-value (LTV) – in other words they assume that the borrower has a 27% deposit to put down.

If you are a first-time buyer in rented accommodation, that's quite an assumption! Based on Halifax's most recent house price index, the average UK property price is just shy of £163,000, and 27% of this is a whopping £44,000.

Those with less to put down will naturally have a larger mortgage, which will be more expensive to repay. And remember that lenders charge higher rates of interest to borrowers with small deposits, so you could find that buying doesn't end up as cheap as you first thought compared to renting.

Of course, the Halifax figures are averages, and are designed to give a snapshot of the market, not to reflect the reality in every postcode of the UK.

What is clear from the report is that mortgage costs have been falling as a result of lower mortgage rates, which is good news for those who can get onto the ladder in the first place. But you need a deposit for that!

However, you also need to work out what's best for you – taking the plunge into the property market or continuing to rent?

Reasons to rent
Renting has a lot going for it. First and foremost, it gives you a level of freedom that is simply not possible when you are a homeowner. So if you are offered a job at the other end of the country, no problem. You can simply move, after giving notice, which is usually a month or two if you have been in the property a while.

Secondly, house prices aren't exactly booming in many parts of the UK, so you aren't missing out by not buying right now. The longer you can save, the more you will have to put down on a home and this will reduce your mortgage costs.

Thirdly, renting may be pricey but at least you don't have to consider all the other costs of homebuying, like Stamp Duty, mortgage fees, legal fees and the survey on your new home, which can add up to thousands. In addition, when you own a home you are responsible for maintenance which can be extremely costly. Renters just pick up the phone and get their landlord to fix the problem.

Despite these obvious perks of renting we are still a nation of homeowners, and aspiring homeowners. And for good reason – there are plenty of benefits to owning your own property.

Better off buying?
Firstly, there is security of tenure with owning your own home. Nobody can give you notice to leave (providing you have met all your mortgage repayments).

Secondly, you can do what you want with your own property (within limits) – paint the walls, refit the kitchen, convert the loft. You own it and can adapt it to your own taste. Many tenants are afraid to even put up paintings for fear of their landlord deducting money from their deposit for pin holes in the walls.

Thirdly, you are slowly chipping away at your debt and buying an asset, probably the biggest one of your life. Many people believe that renting is throwing money down the drain, and buying represents a better use of your money because part of your monthly repayments is going towards paying off your debt. At the same time you could benefit from a rise in property prices over the long term, which would increase your equity stake (of course, prices may also fall!).

If you are thinking of taking that first step onto the property ladder below are some of the best mortgages around right now:

Mortgages for people with a small deposit

Lender

Type of mortgage

Rate

Fee

Max LTV

Chelsea BS

2-year fix

3.69%

£1,695

90%

Post Office

2-year fix

3.75%

£1,495

90%

Yorkshire BS

2-year fix

3.79%

£995

90%

The Co-op Bank

5-year fix

3.79%

£999

85%

Hanley Economic BS

3-year discount

4.19%

£550

90%

Loughborough BS

5-year fix

4.24%

£599

90%

Norwich & Peterborough Building Society

5-year fix

4.79%

£295

90%

Loughborough BS

5-year fix

4.99%

£99

95%

Mortgages for those with a larger deposit

Lender

Type of mortgage

Rate

Fee

Max LTV

Chelsea BS

2-year fix

1.89%

£1,695

60%

HSBC

2-year fix

1.98%

£1,999

60%

Yorkshire BS

2-year fix

1.99%

£995

60%

Nationwide BS

2-year tracker

2.34%

£999

60%

Yorkshire BS

2-year tracker

2.44%

£995

75%

Yorkshire BS

2-year fix

2.49%

£995

75%

Nationwide BS

3-year fix

2.69%

£995 (£499 for FTBS)

70%

First Direct

5-year fix

2.69%

£1,999

65%

Loughborough BS

2-year fix

2.79%

£599

80%

Post Office

5-year fix

2.74%

£995

60%

Chelsea BS

5-year fix

2.89%

£1,695

75%


Use lovemoney.com's innovative mortgage tool now to find the best mortgage for you online

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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