Over £100 A Month Cheaper to Buy Than Rent for First-Time Buyers

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This latest Halifax Buying vs. Renting Review tracks changes in the cost of buying and renting a typical two bedroom flat for a First-Time Buyer across the UK over the last three years.

The cost of buying a home for first-time buyers is more than £100 a month lower than renting, according to new research by Halifax. The average monthly costs associated with buying1 a two bedroom flat in the UK for a first-time buyer (FTB) totalled £567 in July 2011, 16% (£110) lower than the typical rent paid2 on the same property type (£677 a month). This is in contrast to 2008 when the average cost of buying was in fact 29% (£212) more than the average rent paid.

Since 2008, the cost associated with getting onto the property ladder has fallen by 40% (£383), five times the 8% (£62) decline in the average rent paid by private tenants. The cost of buying for a FTB has fallen by 2% over the past year whilst average rental costs have risen by 6%.

Lower mortgage rates and house prices drive down buying costs
The decline in buying costs for a FTB has been driven by the fall in mortgage rates and house prices since 2008. The average mortgage rate3 for a new borrower stands at 3.84%: a fall of 207 basis points from an average of 5.91% in mid 2008. The average FTB house price has fallen by 14% to £124,378 over the same period.

Average deposits stabilise…
FTBs put down an average deposit of £27,127 in July 2011, equivalent to 20% of the average property price. This is nonetheless 6% lower than the average of £28,751 in July 2008, revealing a small improvement over the period.

Moreover, although the transaction costs associated with home purchase including stamp duty and legal fees can also add to the overall cost of buying a property, Halifax estimates that 95% of FTBs are currently exempt from paying stamp duty. This is as a consequence of the temporary increase in the threshold for FTBs from £125,000 to £250,000.

...but number of FTBs has fallen by almost a quarter since 2008
Despite the improvement in the affordability of buying relative to renting, figures from the Council of Mortgage Lenders4 show that there were 84,000 first-time buyers in the first half of 2011: 23% lower than in the same period in 2008. This partly reflects the economic turbulence over the period and the size of the average deposit still required to get onto the property ladder.

The current trade-off between buying and renting will narrow when interest rates rise
Halifax estimates that the cost of buying would be broadly in line with the cost of renting if the current level of Bank Rate rose by 1.5 percentage points5. In this scenario, monthly buying costs for a UK FTB would stand at £681: that would be 1% (£4) higher than the average rent paid. However, given the uncertain economic outlook, interest rates are likely to remain very low for sometime yet.

Suren Thiru, housing economist at Halifax, commented:
"The recent decline in the cost of buying a property for first-time buyers compared to renting has been substantial and reflects the drop in both mortgage rates and house prices since 2008 as well as a marked increase in the average rent paid over the past year."

"However, while these affordability gains are welcome, conditions in the housing market for those looking to get onto the property ladder remain challenging. Difficulties in raising a deposit and the current economic uncertainty are likely to mean that number of prospective first-time buyers entering the market will remain relatively subdued in the near term."

Halifax acts to help first-time buyers
In an effort to further support first-time buyers, Halifax recently announced a new partnership with Experian to launch Halifax Credit Expert. Through the launch of the new service, delivered through the Halifax First Time Buyer Pledge, applicants who do not get approved for a mortgage because of their credit score will have access to a bespoke CreditExpert membership. While Halifax accepts 8 out of 10 applications from first-time buyers, the new service will concentrate on helping those few who are unsuccessful in their first attempt to get on the ladder.

The service will provide Halifax customers with:

  •     unlimited access to their Experian credit report and Experian Credit Score
  •     expert support and advice on what's impacting their score
  •     personalised advice on steps to improve their credit profile.


Buying costs account for a quarter of disposable income
FTB buying costs currently account for 25% of average disposable income. In 2008, buying costs accounted for 48% of average UK disposable income.6

Buying is now more affordable than renting in all UK regions
Buying a property for someone looking to take their first step on to the property ladder was more affordable than renting in all twelve UK regions. Conversely, in July 2008, buying was in fact more expensive than renting in all regions.

Buying is currently most cost-effective compared to renting in Northern Ireland with the average FTB paying 29% a month less than the typical private tenant. In contrast, the cost of buying is just 1% (£9) lower than the cost of renting in the South East.


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Nicholas Osbourne
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