First-time buyer mortgage payments 17% cheaper than renting - even at 95% LTV

New research from Lloyds reveals that, in most major UK cities outside London, buying a home with a low-deposit mortgage is still cheaper than renting.

The analysis compares average monthly rental costs with typical first-time buyer mortgage payments in 11 cities across the country. In nine of those cities, owning a home works out cheaper than renting on a monthly basis.

With 67% of first-time buyers saying that saving for a deposit is the biggest hurdle to owning a home, the research focuses on affordability with a 5% deposit, based on average first-time buyer property prices in each city. Calculations use a 4.78% interest rate fixed for five years, with a 30-year repayment term.

Where can first-time buyers save? 

Glasgow leads the way, with mortgage payments around 32% cheaper than rent – saving buyers £396 a month, or £4,752 a year. With an average first-time buyer property price of £172,000 a deposit of just £8,600 could be enough to get on the ladder.

Newcastle ranks second for savings, with first-time buyers paying 20% less on average for a mortgage than they would in rent. That’s a monthly saving of £217, or £2,604 a year. With an average first-time buyer property price of £180,000, a deposit of just £9,000 might be enough to get started.

Nottingham is a little further down the list, while still offering savings for first-time buyers. Owning a first property in the East Midlands city could save buyers £86 a month, or £1,032 each year, compared to renting. With the average first-time buyer property priced at £183,000, a 5% deposit of £9,150 would be needed.

Over five years, a buyer with a 5% deposit could reduce their LTV ratio from 95% to 87% – even if property prices stay flat.

This means more equity in the home, lower risk of negative equity (a concern often associated with low-deposit mortgages), and better access to future mortgage deals.

Combined with the savings from cheaper mortgage payments compared to renting, this could make a first-time buyer around £32,000 better off after five years – or around £20,500 taking into account the cost of the initial deposit.

Glasgow also tops the city charts on this measure, with monthly savings building up to £23,760 over five years, and additional equity of £13,818, totalling £37,578 or £28,978 on a net basis when the original deposit amount is deducted.

Next comes Bristol, where the monthly savings over give years total £13,860 and additional equity grows to £24,985 to total £38,845, and £23,295 on a net basis.

Even in cities such as Cardiff and Sheffield, where renting can work out slightly cheaper in the short-term, the longer-term benefit of building up equity in the property usually outweighs the difference.

Amanda Bryden, head of mortgages at Lloyds, commented: “We know that saving for a deposit is one of the biggest hurdles for first-time buyers.

“With rents having risen sharply over the last two years, many are already managing monthly payments that are higher than a typical mortgage. 

“That’s why low-deposit mortgages could be the right solution for many – helping people move from renting to owning sooner than they thought possible.

“It’s also important to consider other upfront costs like legal fees and moving expenses – but for most, the long-term savings will outweigh these.
 
“There’s no doubt it’s a challenging landscape for first-time buyers, with both property prices and interest rates higher than they were just a few years ago. 

“But buying a home remains one of the best long-term financial decisions most people will ever make. It’s not just cheaper than renting in the short-term, as the impact of growing equity in your own home – money that would otherwise have been lost in rent – means a more secure financial future."