Back in 1896, Hermann Muthesius, a German architect, was sent to London by his government to examine the state of British housing. “No other nation has identified itself more with the house,” he concluded, after describing “the great store that the English still set by owning their home”.

More than a century later, Muthesius’s statement still rings true — hardly surprising given the astronomic increases in house prices during the past decade and the enormous capital gains made by their owners. Someone who bought an average £62,000 home in 1996, for example, is likely to be sitting on an investment now worth £180,000.

Not even the most excitable commentators are predicting that same house will be worth £522,000 in 2017, though, so even some affluent young people with the money to get on the housing ladder are doing the sums and starting to wonder if buying is such a good idea after all.

Research for The Sunday Times by Hometrack, the property analysts, shows that, in many English and Welsh towns and cities, sharp rises in property prices, and far slower increase in rents for the same period, means that it is becoming significantly cheaper to rent a property than buy its equivalent.

In Prime Central London, for example, an average two-bed flat costs £513,681. Rent it and it would typically cost you £1,860 a month.

Buy it with a 25-year 100% repayment mortgage at 5.47% and you would have to pay £2,903; with an interest-only loan you would still have to pay £2,161 a month. And that is before you factor in wear and tear and routine maintenance costs. In the case of flats, you may also be stung by a service charge of several hundred pounds a week.

Ben Moxham, 27, policy director of BP’s alternative energy unit, is in no hurry to buy. He pays £300 a week to rent a one-bed flat in Bayswater, west London. He has a deposit saved, but the difference between rents and mortgage payments for properties in the area has put him off. “I was looking at one-bedroom flats around Notting Hill and Kensington, where the prices are north of £400,000,” he says.

“A mortgage would equate to far more than the rent I pay.”

It is not just the size of the repayments that puts him off. “The transaction costs on that sort of property are huge. I am looking at the equivalent of a year’s rent in terms of stamp duty alone, and with lawyers’ and estate agents’ fees, the total hit would be between £15,000 and £20,000.”

Moxham believes his generation is less sentimental about home ownership. “We look at property in more rational terms, rather than instinctively wanting to own our own house.” This gap between buying and renting costs is not confined to the swankier parts of central London. In Bristol, a flat that can be rented at £628 a month, would cost £997 with a 100% repayment mortgage (falling to £742 if the interest-only route is chosen). Renting is equally attractive in Leeds, perhaps because of the glut of new flats on the market. You could rent a typical two-bed property in the city for £476, while buying it would cost £705 (or £525 on an interest-only deal).

Renting is less advantageous in Birmingham, where a typical two-bedroom flat would cost £572 to rent, against £668 to buy (or £497 with an interest-only mortgage). Nevertheless, Richard Jeacock, 31, who rents in the city’s pleasant southern suburbs, is far from convinced about the advantages of buying. The planning engineer has spent the past year looking at properties for sale, from existing flats and houses to new buildings and off-plan developments; anything, really, up to the maximum of £165,000 he can borrow.

The trouble is, that sort of borrowing means monthly payments of about £1,200, whereas he has found a three-bed house in leafy Moseley that he can rent for just £750. No contest.

“I could afford a house and the repayments, but in realistic terms I wouldn’t be able to have a life,” he says. “As I take home a little over £2,100 per month, monthly repayments of £1,200 would cripple me. I still want to be able to live, and the idea of working just to afford a house doesn’t sound like fun.

“I could go for a cheaper house in a less desirable area, but what is the point in living somewhere you won’t like just so you can buy something?”

A lot, though, depends on what happens both to prices and rents in the months ahead.

Richard Donnell, head of research at Hometrack, believes the latter are likely to rise. An increasing number of potential tenants are competing for Britain’s limited supply of rented properties, which, despite the buy-to-let boom of the past decade, still account for only 6% of total housing stock.

“A lot of tenants could see their rents being put up this year,” says Donnell. “They could find themselves squeezed, although there might still be the slight solace that renting remains cheaper than buying.”

On the other hand, the Council of Mortgage Lenders is not alone in suggesting that the Bank of England’s decision to raise the base rate to 5.25% could be followed by another quarter-point hike before the end of the year. This will add substantially to monthly mortgage payments, particularly for those new to the housing market.

Ultimately, whether it makes sense to buy or not will depend on what happens to house prices. Savills estate agency has predicted overall growth of 7% for the UK during 2007, and 15% for Prime Central London — substantial capital growth missed out on by “lifestyle renters”. However, its forecasts were based on interest rates remaining steady. If they do go up, house prices could become more stagnant, and renting could become easily the most cost-efficient option.

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