The cost of buying a home for first-time buyers is £670 a year lower than renting, according to new research by Halifax.
The average monthly costs associated with buying1 a three bedroom house in the UK for a first-time buyer (FTB) was £666 in June 2015, 8% (£56) lower than the typical monthly rent paid2 on the same property type (£722 a month).
This is in contrast to June 2009, during the financial crisis, when the average cost of buying was 16% (or £1,154 per year) more than the average rent paid. Even though the average price paid by first-time buyers for a three bedroom house is 25% higher than six years ago, the monthly costs of owning has come down as the average mortgage rate has fallen to 2.91% from 4.92%. Average rents have grown by 23% in the same period.
In the past year, with the price of a typical first-time buyer home rising by 8%, the difference between the cost of owning vs. the cost of renting has narrowed from £85 in 2014 to £56 in 2015 – a fall of 34%. This is partly as a result of average monthly mortgage costs rising by £40 while average monthly rents have only increased by £8 (see Table 1).
Buying more affordable in London and the South West
First-time buyers in London will have, in cash terms, experienced the largest benefit from buying rather than renting a home in the last year. The average monthly cost of £1,338 for those who have bought in London in 2015 compares to an average monthly rental price of £1,419; a saving of £81 a month (£973 over the year) or 6%.
The second largest difference is found in the South West where first-time buyers were paying 9% less a month (£67 a month or £808 annually) than the typical private tenant in the region (see Table 2).
In the South East rental costs are marginally lower (1% or £8 per month) than buying – largely as a result of house price rises – but in all other regions buying costs are on average seven per cent lower than rental costs.
First-time buyer numbers on the up
According to figures from the Council of Mortgage Lenders, there were 136,100 first time buyers in the first six months of 2015. Compared with the same period in 2014, this represents a 9% fall in purchases (from 149,500) – the first annual decrease on this basis since the first half of 2011.
However, in context, with the exception of 2014, it is still the highest total for the first six months since 2009 and was 87% higher than in the first half of that year (72,700). Part of the reason for the slowdown is that supply remains restricted, with the stock of homes available for sale falling further to new record lows.
Craig McKinlay, Mortgage Director, Halifax said:
"Looking at monthly costs, the combination of lower mortgage rates and declining rental value over the past six years has made it cheaper to buy than to rent. While numbers of first-time buyers getting on to the housing ladder in the first six months of both 2014 and 2015 has been over 135,000 – almost double the lows seen in 2009 – the issue of building more new homes in the right places needs to be addressed if we are to see sustainable growth.”