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The gap between renting and buying with a 5% deposit is £300 per month across the UK, reflecting the cost of mortgage rates, Hamptons analysis shows.

The mortgage rate would need to fall from 6.1% to around 4.2% to bring parity with rents.

Hamptons said the reality is that buying with a 5% deposit doesn’t work financially in most places south of Birmingham.

In London, servicing a mortgage would cost the average tenant an extra £775 per month, which equates to £9,300 a year.

Aneisha Beveridge, head of research at Hamptons, said: “Despite rental growth setting at around 6% year-on-year, renting remains more cost-effective than buying for most households across the country.

“High mortgage rates have squeezed buyers with small deposits out of the market, forcing more households to rent for longer.

“Both the Labour and Conservative Parties have included mortgage guarantee schemes in their manifestos to boost the availability of 95% loan-to-value deals. However, their effectiveness will probably be determined by Threadneedle Street rather than Downing Street. The extent to which the Bank of England reduces rates will shape the numbers of would-be buyers with small deposits more than the best-designed government policy.”

The cost of a newly let home in Great Britain rose to an average of £1,337 pcm in May 2024, 6.3% or £79 pcm more than the same time last year.

This marked the third month in a row where year-on-year increases averaged around 6%.

Meanwhile, rental growth for tenants renewing their contracts continued to rise, with average renewal rents up 8.8% year-on-year in May from 8.3% in April.

The slowing of national rental growth for newly let homes has been primarily led by London, where the pace of annual growth fell to 3.9% in May 2024, the lowest rate since November 2021.

Smaller homes are seeing bigger rent rises than larger homes. This reflects affordability challenges that are pushing tenants in search of more affordable homes.

May 2024 marked the first time in 11 months when rents for newly let one-beds (7.6%) rose faster than two-beds (6.2%).

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