Buying a UK property is £116 a month cheaper than renting
Saturday, 28 January 2012 09:22
Low mortgage rates mean that it is cheaper to own your home and pay the mortgage than rent, according to a new review by the Halifax.
Halifax has released a study that tracks the cost of buying and renting a three bedroom property across the UK. The study reveals that paying the mortgage is more £100 a month cheaper than renting.
The typical monthly cost of buying a three bedroom house in the UK in December 2011 was £600, against the average rental cost of £716 per month for a similar property. This means that it is £116 a month cheaper (16 per cent) to own a property than rent.
The research shows a major change in the cost of renting against buying. Just three years ago, owning your home cost an average of 29 per cent more than renting. It also illustrates the relative low cost of being a homeowner in 2011. The monthly costs associated with buying accounted for just 29 per cent of UK disposable income in 2011, compared to 47 per cent in 2008.
This shows that home buying costs have fallen by over a quarter since 2008, by £328. This is due to the fall in average monthly mortgage payments caused by low mortgage rates.
House prices have fallen by an average of 11 per cent since 2008, and mortgage repayments have fallen by around a third or £242 due to lower rates. The average mortgage rate for a new borrower was 3.63 per cent in 2011, compared to 5.75 per cent in 2011.
However, although owning a home is significantly cheaper once you are on the property ladder, the difficulty of raising the required deposit and being accepted for a mortgage for the first time has impacted on the number of new borrowers. This increases the demand for rental property which has resulted in the average cost of renting going up by nine per cent (£62) a month since 2009.
The number of new mortgages agreed in 2011, 510,000 was the lowest annual total since 1974 and fell by six per cent from 2010. This is in part because the deposit required has doubled in the past decade and the associated costs of getting a mortgage such as stamp duty and estate agents fees have increased.
Buying a home was shown to be more cost-effective than renting in 11 out of 12 UK regions in December 2011, with renting only cheaper in Wales. In December 2008 it was cheaper to rent in all 12 UK regions. Over the past 12 months the cost of buying a home has fallen by five per cent, whilst the cost of renting has increased by a similar amount, continuing the trends seen in 2010.
The cost of buying includes mortgage payments, income lost by funding a deposit rather than saving, spending on household maintenance and repair and insurance costs. UK figures are a weighted average of regional data using housing tenure figures.
Martin Ellis, housing economist at Halifax, said: "The affordability gains for buyers relative to renters in the last three years have been significant. The average mortgage payment has fallen dramatically over recent years as a result of falling house prices and mortgage rates. At the same time, rents have risen due to strong demand for rented accommodation.
"Nonetheless, despite the improvement in the relative affordability of buying a home, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the UK economy, which have severely constrained housing demand."
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