Buying home costs less than 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% from 5.82% in March 2008, helping to reduce the average monthly mortgage payment by 39%.

Buying costs currently account for a smaller proportion of average UK disposable income (27%) than rental payments (31%). In 2008, buying costs accounted for a greater proportion of average disposable income than rent (56% against 39%).

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 data shows that the average deposit paid as a percentage of the purchase price has been broadly stable since early in 2009 at around 27%, 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 £1639 in March 2011 (although first-time buyers are exempt on purchases below £250,000); 18% (£358) lower than the average in March 2008.

Despite the advantages of buying versus renting, existing mortgage holders looking to switch to renting could enjoy the financial benefits of releasing the remaining equity in their property.

Selling up your property and renting instead would provide an average equity of approximately £55,000. Investing this in a fixed-rate bond would generate a monthly income of £114 to use to offset rental costs.

Suren Thiru, housing economist at Halifax, said: "The typical monthly mortgage payment has declined by over a third since 2008 as a consequence of falling mortgage rates and lower house prices.

"As such, 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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One thought on “Buying home costs less than renting

  1. Roy Harrison

    Halifax stating that the average deposit paid by first time buyers is 27% is not the experience I have as a practising estate agent. Since 95% mortgages have no longer been available our first time buyer sales have dropped by 70%. Why are lenders not offering 95% mortgages and why even with 90% mortgages are they charging higher interst rates and large arrangment fees. It’s just not fare on the first time buyer and it’s just not fare on the property market. Lets face it if more first time buyer homes are sold the whole property market will improve. But its not just first time buyers. Home owners who purchased four years ago who now want to move are unable to due to the mortgage market and are tied to their present home even if they need to move due to personal circumstances. Why is the Government not stepping in to answer these problems ?. The answer is simple they do not want house prices to increase Lets get the market moving before more Estate Agents close for business and more homes are taken into posession.

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