Buying a first home is now £110 a month cheaper than renting

The Momentum UK Team 28 August 2014

The cost of buying a first home now works out at £110 cheaper a month – a yearly saving of £1,316 a year – compared to renting, according to new research.

In June 2014, the average monthly mortgage repayment for a three bedroom first time buy was £677: £110 less than the average monthly rent on the same type of property (£787), according to a study by high street bank Halifax. Just five years ago the average monthly rent on the same sized property was only £37 more than the average monthly mortgage repayment.

The monthly cost of buying has fallen significantly in line with the decline in average mortgage rates since 2009, in the midst of the recession. The mortgage rate for a first time buyer has fallen from 4.92% in June 2009 to an average 3.09%, helping to reduce the average mortgage repayment by £57 (8%). However, these figures do not take into account the fact that first time buyers now generally need a larger deposit than in previous years, due to rising house prices and tighter lending criteria introduced with the Mortgage Market Review (MMR).

Since this time last year, the difference between the monthly cost of renting compared to buying has grown from £93 to £110. Although the average buying cost has risen £25, it is eclipsed by an average rise in rental costs of £42.

Nationwide, buying remains more cost-effective than renting in every region (including London), apart from the East Midlands. The average first time buyer in the West Midlands pays 12% less in monthly mortgage repayments than if they were private tenants.

The last year has also seen an increase in the number of first time buyers stepping onto the property ladder. The lower costs of buying compared to renting, lower mortgage rates and an economy on the rise may all have contributed to a 29% rise in the number of buyers taking the plunge. In the 12 months to June 2014, there were 301,300 properties were bought by first time buyers, compared to 233,400 for the year before that, and almost twice as much as five years previously (155,700). First time buyers now make up around 45% of housing purchases, compared to 38% five years before.

Craig McKinlay, Mortgage Director at Halifax, commented on the findings:

"It is clearly encouraging that since 2009 there has been a significant decline in the cost of buying a home for those for those trying to get on the housing ladder. The improvement is due to a combination of lower mortgage rates and rising private rents. In contrast, market conditions for renters have deteriorated as rents have risen over the same period.

"Buying costs have been remarkably stable for much of the past five years making home ownership a more attractive option. With greater availability of mortgages that require smaller deposits, the property ladder has also become even more accessible for those who can afford the monthly costs of owning but had previously not been able to save the necessary deposit."