Buying a home in the UK is over a £100 a month cheaper than renting, according to research by the Halifax. The typical monthly cost of buying a three bedroom house in the UK was £600 in December 2011, some £116 or 16% lower than the average monthly rent of £716 paid on the same property type.
This represents a significant turnaround compared with three years ago when the average cost of buying was 29% higher than the average rent paid. The monthly costs associated with buying accounted for 29% of average UK disposable income in 2011, compared to 47% in 2008.
The research is based on average buying costs include mortgage payments, income lost by funding a deposit rather than saving, spending on household maintenance and repair and insurance costs. It uses data from the Halifax's own extensive housing statistics database, Birmingham Midshires, the Bank of England and the Office for National Statistics (ONS). It shows that 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% in 2011 from 5.75% in 2008, while the average house price has dropped by 11% over the same period.
Meanwhile, the average cost of renting has risen by 9% or £62 since 2009. Higher demand for rental property, driven partly by the difficulties for potential buyers entering the housing market, has pushed up rents, the Halifax says.
Over the past year, buying costs have dropped by 5% whilst the typical cost of renting has risen by 5%, continuing the trends seen in 2010.
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% 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.
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% lower than in 2010.
It says that 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.
‘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,’ said Martin Ellis, housing economist at the Halifax.
‘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,’ he added.
