Haliax: £120 a month cheaper to buy a home than rent

Sunday, 17 February 2013 08:22

The gap between the cost of buying a home and renting one is growing, according to the Halifax.

Low interest rates, rising rents and declining house prices mean that it is now £120 a month cheaper to buy a three-bedroom house than it is to rent one.

The gap in the relative costs of buying or renting has increased by £21 a month from £99 a month in 2011.

The average monthly cost of having a mortgage on a three bedroom house was £621 in December 2012, compared to a rental cost of £741 a month for the same property.

This means that homeowners will pay £1,440 a year less than tenants who rent the equivalent property.

New research from the Halifax reveals that the cost of buying a house has dropped by 34 per cent since 2008 and that the average monthly cost of mortgage repayments, maintenance and insurance is 16 per cent lower than the average rent paid on a similar property.

In contrast, the cost of renting a home has risen by 14 per cent since 2009.

The new figures are published as the Office of Fair Trading considers introducing new laws to govern letting agents following an increase in the number of complaints.

The figures used by the Halifax do not include the cost of a deposit to secure a mortgage, which is an average of £27,984 for a first-time buyer.

The figures mark a big change in the costs of housing since the financial crisis began in 2008. At that time, the average cost of buying a home was £217 per month more expensive than the average rent in the UK.

The Bank of England tried to support the property market by cutting base rate to 0.5 per cent, the lowest ever level, in March 2009. This has meant that mortgage rates are much cheaper. 

At the same time, with tightened lending conditions, households have found it more difficult to get a mortgage which has increased demand for rental property, thus pushing up the cost of renting.

The figures show that investors are taking advantage of this as the proportion of all mortgage lending that was for buy-to-let properties increased from 9.8 per cent to 11.5 per cent in 2012. Figures from the Council of Mortgage Lenders show that there are nearly 1.5 million people in the UK who have buy-to-let mortgages.

The number of homes purchased reached a five-year high in 2012, but sales are still around 40 per cent below the level they were at before the credit crunch.

Martin Ellis, housing economist at Halifax, said: “The sharp decline in home buying costs over the past few years, combined with a significant increase in rents, has greatly improved the financial attractiveness of buying a home. This shift has contributed to the increase in the numbers of house purchases.”

Buying a house is more affordable than renting in all regions. Across the UK, the biggest difference in the cost of mortgaging against the cost of renting was in London where it works out £194 per month more expensive to rent than buy. However, in Yorkshire and the Humber, it is just £1 more expensive to rent than buy.

Mr Ellis added: "Despite this pick-up, home buying levels remains well below the levels at the height of the market.  Today, concerns over job security and raising a deposit are the main obstacles to people buying their own home. However, it is worth noting that once homebuyers are on the first rung of the ladder, their monthly costs are notably lower."


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