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Getting on the property ladder might be closer than many first-time buyers think. New research from Lloyds reveals that, in most major UK cities outside London, buying a home with a low-deposit mortgage is cheaper than renting - potentially saving buyers thousands each year.
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.
Encouragingly, a recent Lloyds survey found that 45% of prospective first-time buyers who’ve started saving already have £10,000 or more set aside - putting them well on the way to a 5% deposit in many cities.
While buying is often cheaper than renting, it’s not the right choice for everyone. Flexibility, job mobility, and lifestyle preferences mean renting still suits many. But for those ready to settle, the financial case for buying is increasingly compelling.
Amanda Bryden Head of Mortgages at LloydsWe 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.
Beyond the monthly savings, buying a home offers more security, and helps build financial stability.
Over five years, a buyer with a 5% deposit could reduce their loan-to-value 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 LloydsThere’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. For anyone thinking about buying, speaking to a mortgage adviser or broker is a great first step. They can help you understand what’s affordable based on your budget and guide you through all the options.