To buy, or not to buy? —That is the question facing spring property hunters across Shropshire and Mid Wales.

After surging increases in private sector rents over the last 18 months, the average tenant is now paying more to live in a property than an owner-occupier making monthly mortgage repayments, according to new research.

It is now more cost effective to buy — on a mortgage costing five per cent — than to rent in eight out of every locations, says the property website Zoopla.co.uk.

Regional variations mean it is cheaper to buy in Milton Keynes, for example, while it is cheaper to rent in Plymouth. But tenants, of course, are insulated against falling prices and repair and maintenance costs.

Zoopla says the financial gap between renting and buying has been widening since mid-2010, when renting was 8.7 per cent more expensive.

Its research is based on the cost of running a two-bedroom flat in the 50 largest populations around the country and assumes an interest-only mortgage at five per cent as a basis for comparison.

In some locations — including several across the West Midlands — rents have risen so strongly that tenants pay far more than owner-occupiers.

Several factors are driving rents higher: the shortage of mortgages has kept many potential first-time buyers in the rental market. Meanwhile, the combination of stagnant house prices and low interest rates has cut the cost of home ownership.

Nicholas Leeming at Zoopla.co.uk said: “While lenders maintain their vice-like grip on loans, more and more would-be buyers have to rent instead of getting onto the housing ladder.

“Rents are likely rise further this spring as a result and tenants will continue to pay a significant premium for being stuck in the sector.

“While buying wins out over renting today, the impact of a possible rise in interest rates cannot be ignored. If interest rates rose by one per cent and rents stayed the same, renting would become more cost effective in 78 per cent of the locations studied.”

Agents specialising in lettings expect demand for rental property to far outstrip supply in 2011 and well into 2012 “because of broader issues of diminishing housing supply and lending drying up”, says Ian Potter, a director of the Association of Residential Letting Agents.

Some 40 per cent of ARLA members expect more private landlords to enter the market during the next year.

Potter continues: “Research shows 41 per cent of young low-to-middle earners living in private rented accommodation, compared with 14 per cent in 1988. This trend looks set to continue while the capital barriers to home ownership appear so entrenched.”

ARLA is urging the Government to incentivise the renovation of properties for rental use, and improving options for sustainable refurbishment — ideally in the Chancellor’s Budget statement.