MortgagesAug 24 2015

Gap between buying and renting narrows: Halifax

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Gap between buying and renting narrows: Halifax

New research has found that it is £670 a year cheaper for a first-time buyer to pay towards a mortgage than to rent, however the difference between the two has narrowed over the last year.

According to Halifax, the average monthly costs associated with buying a three-bedroom house in the UK for a first-time buyer was £666 in June, 8 per cent (£56) lower than the typical monthly rent paid on the same property type (£722 a month).

This is in contrast to June 2009, when the average cost of buying was 16 per cent (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 per cent higher than six years ago, the monthly costs of owning has come down, as the average mortgage rate has fallen to 2.91 per cent from 4.92 per cent.

Meanwhile, average rents have grown by 23 per cent in the same period.

In the past year, the difference between the cost of owning versus the cost of renting has narrowed from £85 in 2014 to £56 in 2015 – a fall of 34 per cent. This is partly as a result of average monthly mortgage costs rising by £40 while average monthly rents have only increased by £8.

Halifax’s analysis also showed that 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).

The second largest difference is found in the south west, where first-time buyers were paying 9 per cent less a month (£67 a month or £808 annually) than the typical private tenant in the region.

However, in the south east rental costs are marginally lower (1 per cent 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.

Craig McKinlay, mortgage director at Halifax, said that 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.”

peter.walker@ft.com