Buying 16% cheaper than renting

Updated: 

Gareth Fuller/PA Wire

According to new research from Halifax, buying a home in the UK is over a £100 a month cheaper than renting.

The typical monthly cost of buying a three bedroom house in the UK was £600 in December 2011 £116 (or 16 percent) lower than the average monthly rent of £716 paid on the same property type.

The Halifax Buying vs. Renting Review figures show a significant turnaround compared with three years ago when the average cost of buying was 29 percent higher than the average rent paid. The monthly costs associated with buying accounted for 29 percent of average UK disposable income in 2011, compared to a staggering 47 percent in 2008.

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 percent in 2011 from 5.75 percent in 2008, while the average house price has dropped by 11 percent over the same period.

Meanwhile, the average cost of renting has risen by 9 percent (£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 percent whilst the typical cost of renting has risen by 5 percent, 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 to 2008 when buying was more costly than renting in all regions.
Despite having higher absolute costs, buying is currently most affordable relative to renting in London where average monthly rents reach £1212, compared with monthly buying costs of £1,089. 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 percent lower than in 2010.

Much of this decline can be attributed to the increase in the size of the deposit required, with the average amount more than doubling over the past decade.

Martin Ellis, housing economist at Halifax, commented: "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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