Buying a home in the UK is over a £100 a month cheaper than renting, according to research by Halifax. The typical monthly cost of buying a three bedroom house in the UK was £600 in December 2011: £116 (or 16 per cent) lower than the average monthly rent of £716 paid on the same property type1.
This represents a significant turnaround compared with three years ago when the average cost of buying was 29 per cent higher than the average rent paid. The monthly costs associated with buying accounted for 29 per cent of average UK disposable income in 2011, compared to 47 per cent in 20082.
Home buying costs have fallen by more than a quarter (£328) since 2008, driven by a decline in the average monthly mortgage payment of nearly one-third (£242) due to the marked fall in mortgage rates and house prices. The mortgage rate for a new borrower has been reduced to an average of 3.63 per cent in 2011 from 5.75 per cent in 2008, while the average house price has dropped by 11 per cent over the same period3.
Meanwhile, the average cost of renting has risen by 9 per cent (£62) since 2009. Higher demand for rental property, driven partly by the difficulties for potential buyers entering the housing market, has pushed up rents.
Over the past year, buying costs have dropped by 5 per cent whilst the typical cost of renting has risen by 5 per cent, continuing the trends seen in 2010.
The regional picture
Buying a home was more cost-effective than renting in eleven out of the twelve UK regions in December 2011. In contrast, buying was more costly than renting in all regions in December 2008, demonstrating the considerable turnaround over the last three years.
Despite having higher absolute costs, buying is currently most affordable relative to renting in London with the average borrower in the capital paying 10.2 per cent less per month than the typical private tenant. At the other end of the spectrum, Wales is the only region where renting remains cheaper than buying.
Home Buyers: the inside track
The number of buyers entering the market has continued to decline despite the improvement in the affordability of buying compared with renting since 2008. Halifax estimates that there were around 510,000 home purchases with a mortgage in 2011: the lowest annual total since 1974 and 6 per cent lower than in 2010. Much of this decline can be attributed to the increase in the size of the deposit required, with the size of the average deposit put down more than doubling over the past decade. In addition, higher costs related to moving home such as stamp duty and estate agents fees have also added to the overall cost of home buying.
Martin Ellis, housing economist at Halifax, commented:
“The affordability gains for buyers relative to renters in the last three years have been significant. The average mortgage payment has fallen dramatically over recent years as a result of falling house prices and mortgage rates. At the same time, rents have risen due to strong demand for rented accommodation. Nonetheless, despite the improvement in the relative affordability of buying a home, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the UK economy, which have severely constrained housing demand.”
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