The cost associated with buying a home in Scotland is now lower than renting a property, according to new research by Bank of Scotland.
The average monthly costs associated with buying a three bedroom house stood in Scotland stood at £514 in March 2011; three per cent (£17) lower than the average monthly rent paid on the same property type of £531. Three years ago, the average cost of buying was 59 per cent more than the typical rent paid. Across the UK, average buying costs are currently 14 per cent lower than the cost of renting.
The significant fall in the monthly cost associated with buying compared to renting has been driven by the decline in the average mortgage rate since 2008. The mortgage rate for a new borrower has fallen to an average of 3.59 per cent from 5.82 per cent in March 2008, helping to reduce the average monthly mortgage payment by 38 per cent.
Buying costs currently account for a slightly smaller proportion of average Scottish disposable income4 (27 per cent) than rental payments (28 per cent). In 2008, buying costs accounted for a greater proportion of average disposable income than rent (51 per cent against 32 per cent).
Despite the improvement in the affordability of buying relative to renting, the tightening in lending criteria since 2007 has meant that many potential buyers have not attempted to enter the market. Nonetheless, market data5 shows that the average deposit paid as a percentage of the purchase price has been broadly stable since early in 2009 at around 27 per cent, following a marked rise in 2008.
Transaction costs including stamp duty and the fees associated with home purchase also add to the overall costs of buying a property. The average stamp duty bill for a three bedroom house was £1,385 in March 2011 (although first-time buyers are exempt on purchases below £250,000); 17 per cent (£288) lower than the average in March 2008.
Suren Thiru, housing economist at Bank of Scotland, commented:
“With the typical monthly mortgage payment declining by over a third since 2008 as a consequence of falling mortgage rates and lower house prices, the fall in the cost of buying a property compared to the average rent paid by tenants has been significant. Such a marked decline in mortgage costs has improved affordability for those able to enter the market as well as helping to ease the pressure on existing homeowners’ disposable income.
“Although the current trade-off between buying and renting is expected to narrow when interest rates start to rise again, the long-term benefits associated with investing in bricks and mortar are likely to ensure that buying will continue to be viewed favourably by many.”
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