Mortgages  

First-time buyers almost 10% better off than renters

First-time buyers almost 10% better off than renters

First-time buyers in the UK are £742, or 9 per cent, a year better off on average compared to those who rent, according to research by Halifax.

The average monthly buying cost including mortgage payments associated with a first-time buyer of a three-bedroom house stood at £658 in December, £62, or 9 per cent, lower than the typical monthly rent of £720 paid on the same property type, the bank said.

With the price of a typical first-time buyer home rising by 8 per cent in 2014, the difference has narrowed from £80, or 12 per cent, since 2013, as the average monthly buying costs grew by £46 while average monthly rents increased by £28.

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Five years ago the average monthly cost of buying was £15 higher than the typical rent paid (£576 versus £561). Since 2009 the substantial improvement in the affordability of buying relative to renting largely reflects a 28 per cent (£159) rise in average monthly rental costs.

Price differentials are likely to be dependent on the level of deposit a buyer can afford, with substantial differences in headline mortgage rates for those first-timers only able to amass a 5 per cent deposit compared to those with 20 per cent or more.

According to Halifax, the number of first-time buyers increased by an estimated 22 per cent last year with 326,500 getting on the ladder, the highest annual total since 2007 (359,900).

Craig McKinlay, mortgage director at Halifax, said that while the timescales associated with raising a sufficient deposit to buy a home present a hurdle to many potential first-time buyers, the significant difference in costs between buying and renting, combined with still low mortgage rates, increased consumer confidence and the Help to Buy scheme, have all been factors driving the substantial rise in first-time buyers over the past two years.

Meanwhile, Gocompare.com’s mortgage spokesman Matt Sanders, stated that banks and building societies are falling over themselves to lend to first-time buyers, after Bank of England governor Mark Carney’s indication last week that the base rate is unlikely to rise this year.

At the moment two-year fixed rate mortgage deals can start from around 1 per cent, while five-year fixed deals are around the 2 per cent. Those with only a 5 per cent deposit are likely to see rates of around 5 per cent.

“With the Bank of England base interest rate likely to remain at 0.5 per cent or even lower throughout this year it’s still worth those who are on a fixed rate mortgage shopping around.

“The penalty fee you may have to pay to get out of your current deal could be offset by the savings you make in the long term for having a lower rate mortgage.”

peter.walker@ft.com