First-time buyers in Scotland are on average £1,440 (19%) a year better off with their own home compared to those who rent, according to research by Bank of Scotland. The average monthly buying cost (including mortgage payments1) associated with a first-time buyer buying a three bedroom house stood at £5252 in December 2015; £120 (or 19%) lower than the typical monthly rent of £6453 paid on the same property type.
This represents an increase of £659 over the past year compared with the annual saving associated with buying a home instead of renting of £781 in 2014. The difference has grown as result of average monthly rents rising by £46 (8%) compared to a £9 (2%) decrease in monthly buying costs.
Gap grows significantly in past 5 years
The financial gap between buying and renting is almost treble the annual saving of £548 in 2010 to the current level of £1,440. Over this period, the average rent has grown by 20% (£109 a month) from £536 whilst average buying costs have increased by 7% (£35 a month) from £490. The last time renting was the cheaper option was in 2008 (£573 against £755). (See Table 1)
Scotland sees second largest saving in the UK
First time buyers in the North West save the most by buying a property rather than renting. Average monthly buying costs there (£525) are 20% less expensive (£133) than average monthly rental costs (£658). Scotland is close behind, with a 19% (£120) monthly saving buying a property. In both Northern Ireland and Wales it is 18% cheaper a month (£85 and £103 respectively) to buy than rent.
On the other hand, average monthly buying costs (£965) in the South East are higher (£65) than average monthly rental costs (£900) – the only UK region where renting is the cheaper option. (See Table 2)
Number of first-time buyers in the housing market
The number of first-time buyers in Scotland is estimated4 to have totalled 27,900 in 2015; largely unchanged from 27,700 in 2014. This represents an increase of two-thirds (67%) since the number of first-time buyers fell to a recent low of 16,700 in 2011.
The number of first-time buyers accounted for 46%5 of all house purchases made with a mortgage in 2015. This share has grown from 35% at the start of the housing downturn in 2007.
Nicola Noble, Mortgage Director, Bank of Scotland said,
"Since 2009, average buying costs have consistently been lower than average renting costs. In the past year this gap has doubled to an annual saving of £1,440. Of course, it was not always like this. In 2008, buying was more expensive than renting, but record low mortgage rates, coupled with rising private rents, have made getting on the housing ladder financially more attractive for those able to raise the necessary deposit and with access to mortgage finance.
"This improvement in the costs of buying compared to renting over the past few years has helped to boost the number of first-time buyers, who now account for 46% of all home sales in 2015 – up from 35% in 2007. Official government schemes, such as Help to Buy have also played a part in helping first-time buyers as have improving economic conditions."