Buying cheaper than renting - study

%VIRTUAL-SkimlinksPromo%To let signsHome buyers are almost £900 better off a year than those who rent - but an upturn in house prices means the gap has narrowed in recent months, a report has found.

Research by Halifax found that people buying a three-bedroom house face typical costs of £672 a month, which is £73 less than the average £745 a month cost of renting.
Five years ago, renting was considered much more financially attractive than buying, but home buying costs have since fallen by more than a third (37%), meaning that buying has become cheaper than renting.

Much of this about-turn is due to falls in house prices following the economic downturn combined with ultra-low mortgage rates in the low interest rate environment, which have been pushed lower over the last year by the Government's flagship Funding for Lending scheme to kick-start the housing market.

A mortgage price war broke out after the launch of Funding for Lending, which has given lenders access to cheap finance to help borrowers. The average mortgage rate for a new borrower has fallen from 5.88% in June 2008 to 3.57% by June this year.

Meanwhile, rental costs have been pushed higher by strong demand in the sector, as many renters have struggled to get on to the property ladder in the tough economy.

But a return to activity in the housing market has pushed house prices up, which means that the gap between buying and renting costs has narrowed from a difference of £78 a month one year ago.

Some concerns have been raised in recent months that the recent upturn could lead to an over-inflated house price bubble, with borrowers over-stretching themselves.

These suggestions have been dismissed by Chancellor George Osborne and by mortgage lenders, both of whom have pointed out that transactions are still at relatively low levels.

Halifax recently reported that prices nationally have risen by 5% over the last year. Other reports have recently put prices in London at around 10% higher than they were a year ago.

People living in London and Northern Ireland have the most to gain from buying rather than renting, the research suggested. The gap in percentage terms is biggest in Northern Ireland, at 11%. Buying in Northern Ireland costs £369 a month on average, while renting costs £415.

In cash terms, Londoners have the most to gain from being on the property ladder, with a saving of almost £100 a month.

Wales and Yorkshire and the Humber were the only areas of the UK where renting was found to be more affordable than buying. In Scotland, buying was found to work out £27 a month cheaper than renting.

Martin Ellis, housing economist at Halifax, said: " A combination of lower mortgage rates and declining house prices has substantially reduced the cost of buying over the past six years.

"Nevertheless, the number of home buyers in the 12 months to June 2013 was nearly half of that in 2008, which will have been constrained by worries over job security."

Halifax based its calculations on its own database as well as official figures. For its home buyer calculation, it took into account mortgage payments for the average new borrower with a 25% deposit as well as household repair costs and income lost by funding a deposit rather than having the money in savings.

Rental payments were taken from figures from Birmingham Midshires, which is part of the same banking group as Halifax.

Here are monthly home buying costs, followed by monthly rental costs, and the percentage difference by region, according to Halifax:
  • Northern Ireland, £369, £415, minus 11%
  • London, £1,200, £1,297, minus 8%
  • Scotland, £537, £564, minus 5%
  • North, £469, £486, minus 4%
  • South East, £881, £912, minus 3%
  • South West, £723, £737, minus 2%
  • North West, £520, £529, minus 2%
  • East Anglia, £628, £637, minus 2%
  • West Midlands, £553, £559, minus 1%
  • East Midlands, £524, £527, minus 1%
  • Wales, £490, £485, 1%
  • Yorkshire and the Humber, £498, £493, 1%

And here is how the costs have changed since 2008, with monthly home buying costs, followed by monthly rental costs, and the percentage difference:
  • June 2008, £1,072, £720, 49%
  • June 2009, £775, £697, 11%
  • June 2010, £676, £657, 3%
  • June 2011, £668, £693, minus 4%
  • June 2012, £650, £728, minus 11%
  • June 2013, £672, £745, minus 10%
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