Buying £900 a year cheaper than rent

houseline91Homebuyers in the UK are £875 (10%) a year better off buying their own home instead of renting, according to research by Halifax.

The average monthly costs associated with buying a three bedroom house stood at £672 in June 2013; £73 (or 10%) lower than the typical monthly rent of £745 paid on the same property type. The percentage difference between the monthly cost of buying and renting has fallen marginally from a year earlier.

Five years ago renting was considerably financially more attractive than buying. In June 2008 the average monthly cost associated with home buying was £352 (49%) higher than renting – equivalent to an annual cost difference of £4,226. The substantial improvement in the affordability of buying relative to renting since 2008 largely reflects a 37% decline in home buying costs over the past five years.

UK average monthly buying costs and rental payments

Average monthly buying costs* Average monthly rental costs** % difference £ difference
June 2008 £1,072 £720 49% £352
June 2009 £775 £697 11% £78
June 2010 £676 £657 3% £19
June 2011 £668 £693 -4% -£25
June 2012 £650 £728 -11% -£78
June 2013 £672 £745 -10% -£73

Sources: Halifax, Birmingham Midshires and ONS. Buying and rental costs are 12 months to June.

Weighted average of regional data using owner occupied housing tenure figures

**Weighted average of regional data using private rental housing tenure figures.

Both lower house prices and mortgage rates have contributed to making home buying more affordable. The average mortgage rate for a new borrower has fallen by 2.31%2 over the past five years from 5.88% in June 2008 to 3.57% in June 2013. The average house price has fallen by 13% over the same period. The typical rent paid, however, has increased by 13% (£88) since June 2010.

Buying a house is more affordable than renting in all but two regions in the UK. Average monthly buying costs in both Yorkshire and the Humber and Wales are marginally higher (1%) than average monthly rental costs. On the other hand, buying is most affordable compared to renting in percentage terms in Northern Ireland where the typical homebuyer paying 11% (£47) a month less than the average renter (£369 against £415). In cash terms, the average monthly cost of buying in London is £98 lower than renting.

Average monthly buying and rental costs by region, June 2013

 Region Average monthly buying costs Average monthly rental costs % difference £ difference
Northern Ireland £369 £415 -11% -£47
Greater London £1,200 £1,297 -8% -£98
Scotland £537 £564 -5% -£27
North £469 £486 -4% -£17
South East £881 £912 -3% -£32
South West £723 £737 -2% -£14
North West £520 £529 -2% -£9
East Anglia £628 £637 -2% -£10
West Midlands £553 £559 -1% -£6
East Midlands £524 £527 -1% -£3
Wales £490 £485 1% £5
Yorkshire & the Humber £498 £493 1% £6

Sources: Halifax, Birmingham Midshires and ONS. Buying and rental costs are 12 months to June.

Despite the improvements in mortgage affordability, the number of buyers in the UK housing market in the twelve months to June 2013 was 44% lower (959,770) than in the same period in 2008 (1,711,000). However, there are signs of increasing market activity, with the number of home buyers rising by 3% compared to the same period in 2012.

The recent Halifax housing confidence survey shows that sentiment regarding the housing market has improved markedly in recent months. This increase in optimism is partly due to house prices picking up so far in 2013. However, the survey shows that worries over job security and raising a deposit remain key obstacles to market activity. The average deposit put down by homebuyers has grown to £40,628 in June 2013, up from £38,893 a year earlier.

Martin Ellis, housing economist at Halifax, commented: “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 twelve months to June 2013 was nearly half of that in 2008, which will have been constrained by worries over job security.

“We understand that building a deposit is still a key challenge for those looking to get on the ladder, although once this has been achieved, buying is much more affordable. Whilst optimism in the housing market has improved in recent months these factors remain key obstacles to home purchases.”

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