Renting vs Buying in 2025: What's Best for First-Time Buyers

Current Market Reality

Monthly Cost Comparison

First-time buyers with a 10% deposit are now paying an average £1,328 per month on their mortgages, while tenants are paying an average of £1,356 per month, so slightly more. This narrow difference represents a significant shift from historical patterns where renting was typically much cheaper.

According to a recent analysis by Zoopla, purchasing a property is now cheaper than renting in all but one region of the UK. However, the key challenge for first-time buyers is raising a substantial deposit. The monthly savings from buying average around 20%, with monthly mortgage repayments for first-time buyers average at £1,038 per month, while the typical UK rental payment stands at £1,248 per month.

Regional Variations

The rent versus buy equation varies dramatically across the UK. In London, renting has been more affordable than buying since July 2022, with monthly mortgage payments currently averaging £2,370 compared with £2,255 for renting – a £115 difference favoured towards tenants.

Outside London, buying generally offers better value, but the deposit requirement remains the primary barrier for most first-time buyers.

The Rental Market Challenge

Rising Rental Costs

As of December 2024, rental prices surged by 9.0% year-on-year, significantly outpacing the average wage growth in the country. This trend shows little sign of slowing, creating additional pressure on renters trying to save for deposits.

The cost of renting is predicted to continue rising in 2025. There is currently a supply imbalance between those needing a property to rent and the available properties, so prices are continuing to increase.

Market Conditions Improving

Despite rising rents, the rental market is showing signs of rebalancing. Demand is 24% lower than last year on the back of lower migration levels and improved mortgage availability for first-time buyers. Additionally, the number of homes available to rent has increased across all regions compared to last year.

Government Support for First-Time Buyers

Mortgage Guarantee Scheme

The new Mortgage Guarantee Scheme, permanently available from July 2025, to sustain availability of 91-95% loan-to-value mortgages by providing participating lenders with a government-backed guarantee. This scheme allows eligible buyers to buy a home with a deposit as small as 5% throughout the United Kingdom.

Freedom to Buy Initiative

The Labour government has pledged to launch the Freedom to Buy mortgage scheme, which will be a permanent mortgage guarantee scheme, to support lending at 95% LTV. This permanent structure provides greater certainty for both lenders and buyers.

Other Government Schemes

Several additional schemes support first-time buyers in 2025:

• First Homes Scheme: If you're a first-time buyer, you may be able to buy a home for 30% to 50% less than its market value
• Shared Ownership: You buy between 50% and 90% of the property (known as the 'starter share'). You can increase your share in 5% steps at any time
• Lifetime ISA: Provides a 25% government bonus on savings up to £1,000 annually for first home purchases

The Deposit Challenge

Regional Requirements

The amount required varies significantly by region: North East: A 20% deposit is around £27,700. London: The same 20% deposit would need to be £83,400.

Even with 5% deposit schemes, first-time buyers in expensive areas face substantial upfront costs. Zoopla's research found that 63% of first-time buyers rely on family support to help raise their deposit.

Affordability Testing

Since 2015, new mortgage regulations require lenders to assess whether borrowers could afford payments if interest rates rose significantly - often testing against rates as high as 8%. This stress testing can prevent renters who can afford current payments from qualifying for mortgages.

Financial Considerations

Buying Advantages

• Equity Building: Unlike rent payments, mortgage payments build equity and long-term wealth
• Price Appreciation: House prices are expected to gently trend higher in 2025, with experts predicting 2-4% growth
• Stability: Protection against rent increases and tenancy changes
• Control: Ability to modify and improve your home

Buying Disadvantages

• Upfront Costs: Significant deposit, legal fees, stamp duty, and moving costs
• Maintenance: Full responsibility for repairs and property upkeep
• Market Risk: Potential for negative equity if property values decline
• Reduced Flexibility: Harder to relocate quickly for career or personal reasons

Renting Advantages

• Flexibility: Easy to move for career opportunities or lifestyle changes
• Lower Upfront Costs: Typically just deposit and first month's rent
• No Maintenance: Landlord responsible for repairs and upkeep
• Location Options: May afford better locations than affordable purchase options

Renting Disadvantages

• No Equity Building: Monthly payments provide no long-term financial benefit
• Rent Increases: Vulnerable to annual rent rises and market pressures
• Insecurity: Risk of eviction or property sale forcing relocation
• Restrictions: Limited ability to customize or improve the property

2025 Market Outlook

Property Prices

Savills is now expecting 1% growth in 2025, down from 4% previously, suggesting a more stable environment for buyers. House prices might rise by 3% to 5% across the country, with regional variations favoring northern areas over London and the South East.

Mortgage Rates

The Bank of England base rate is now 4.25%. This change occurred after a cut in May 2025. Further cuts are possible if inflation continues declining, potentially improving affordability for buyers.

Stamp Duty Changes

Starting in April 2025, the no-cost stamp duty for first-time buyers has been set at £300,000, increasing costs for properties above this threshold, particularly affecting London and South East buyers.

Making the Right Decision

Buy If You:

• Can secure at least a 5-10% deposit through savings or family support
• Plan to stay in the same area for at least 3-5 years
• Can comfortably afford monthly payments including maintenance costs
• Value stability and long-term wealth building over short-term flexibility

Rent If You:

• Lack sufficient deposit savings and have no family support
• Anticipate significant career or lifestyle changes requiring mobility
• Prefer lower upfront costs and maintenance-free living
• Cannot comfortably afford mortgage payments plus ownership costs

Consider Government Schemes If:

• You earn under £80,000 (£90,000 in London) for First Homes
• You can manage mortgage payments but struggle with large deposits
• You're open to shared ownership or partial equity arrangements

Practical Steps for 2025

For Potential Buyers:

• Research local schemes and eligibility requirements
• Improve credit scores and gather financial documentation
• Consider government-backed 5% deposit mortgages
• Factor in all ownership costs beyond monthly payments

For Current Renters:

• Take advantage of improved rental supply and negotiate better terms
• Use Lifetime ISAs or similar savings schemes for future deposits
• Monitor mortgage rate trends and scheme availability
• Build emergency funds for eventual transition to ownership

The choice between renting and buying in 2025 depends heavily on individual circumstances, location, and financial capacity. While buying offers long-term financial advantages and stability, renting provides flexibility and lower upfront costs. Government schemes significantly improve buying accessibility, but the deposit challenge remains substantial, particularly in expensive areas. Success requires careful evaluation of personal priorities, financial capability, and local market conditions rather than following general market advice.