Lloyds research finds first-time buyers have an advantage over tenants
In nine out of 11 major UK cities outside London, first-time buyers with a low-deposit mortgage pay less each month than those renting, according to new research from Lloyds.
The study found that, in most cases, purchasing a home is more affordable than renting, with buyers potentially saving thousands of pounds annually. The research focused on affordability for first-time buyers able to put down a 5% deposit, using average property prices for each city. Calculations were based on a 4.78% fixed interest rate over five years and a 30-year repayment period.
According to Lloyds, 67% of first-time buyers identified saving for a deposit as the main barrier to home ownership. However, a recent survey by the bank indicated that 45% of prospective buyers who have started saving already possess at least £10,000, which could be sufficient for a 5% deposit in several cities.
While the financial case for buying is strong, Lloyds acknowledged that renting remains suitable for some due to the flexibility it offers. For those prepared to settle, however, the potential savings are significant.
In Glasgow, mortgage repayments are approximately 32% lower than rent, equating to a saving of £396 per month or £4,752 annually. With an average property price of £172,000, a deposit of £8,600 could be enough to secure a home. Newcastle follows, where buyers pay 20% less on average for a mortgage than for rent, amounting to a monthly saving of £217, or £2,604 per year, with a typical deposit of £9,000. Nottingham also offers savings, with buyers able to save £86 per month, or £1,032 annually, compared to renting. The average property price for first-time buyers in the city is £183,000, requiring a deposit of £9,150.
“We know that saving for a deposit is one of the biggest hurdles for first-time buyers,” said Amanda Bryden (pictured right), head of mortgages at Lloyds. “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 monthly savings, the report highlights that home ownership can provide greater 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 remain unchanged.
This increase in equity can lower the risk of negative equity and improve access to future mortgage deals. Factoring in both monthly savings and equity growth, a first-time buyer could be around £32,000 better off after five years, or £20,500 after accounting for the initial deposit.
Glasgow leads in potential gains, with five-year savings totalling £23,760 and additional equity of £13,818, amounting to £37,578 before deducting the deposit. Bristol follows, with combined savings and equity growth of £38,845 over the same period.
Even in cities such as Cardiff and Sheffield, where renting may be marginally cheaper in the short term, the long-term benefits of building equity often outweigh the difference.
Mary-Lou Press, president of industry body NAEA Propertymark, said that while low-deposit mortgage products are helping more first-time buyers access the property market, many still face significant upfront financial hurdles.
“Recent changes to Stamp Duty in England and Northern Ireland mean that some first-time buyers will also now have additional tax to pay,” she said. “Beyond the deposit and any relevant property tax, buyers must also budget for solicitor fees, mortgage arrangement charges, valuation and survey costs, local authority searches, moving expenses, and insurances. In many cases, these additional costs can amount to several thousand pounds, making the initial outlay far higher than just the deposit alone.
“That said, in some areas, we are seeing that monthly mortgage repayments can still be lower than local rents, especially for buyers securing competitive rates. But affordability must be assessed holistically. First-time buyers need to go in with a clear understanding of both the upfront and ongoing costs of ownership to make an informed decision.”
“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,” Bryden said. “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.”
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