Posted 23 February 2017 by
Ben SalisburyThe regular cost of living in your own home is still cheaper than renting but the gap is closing, according to a new study.
Halifax found that the cost of buying a three-bedroom property averages £705 a month, compared to a monthly cost of £759 to rent an equivalent property, a difference of £54 a month.
But the gap has narrowed to £651 a year in 2016 from £962 a year in 2011.
The real change came in the aftermath of the 2008 credit crunch which led the Bank of England to radically cut the base interest rate to 0.50%, which led to cheaper mortgages for homeowners.
Before the base rate cut, at the end of 2008, the monthly cost of paying for your own home through a mortgage averaged £871.71, compared to £616.05 for renting, a difference of over £250 a month, stacking up to a major difference of over £3,000 over a year.
Just a year later, by December 2009, this difference had been eroded, with the monthly cost of a mortgage just £17 higher than the cost of renting.
First-time buyer average monthly buying costs and rental payments for UK| Month | Ave monthly buying costs | Ave monthly rental payment | % difference | £ difference | £ Annual savings |
| Dec-08 | £871.71 | £616.05 | 42% | £255.66 | £3,067.94 |
| Dec-09 | £577.69 | £560.73 | 3% | £16.96 | £203.54 |
| Dec-10 | £575.52 | £605.22 | -5% | -£29.70 | -£356.39 |
| Dec-11 | £572.51 | £652.71 | -12% | -£80.20 | -£962.39 |
| Dec-12 | £588.09 | £661.41 | -11% | -£73.31 | -£879.78 |
| Dec-13 | £613.49 | £691.60 | -11% | -£78.10 | -£937.23 |
| Dec-14 | £658.73 | £720.21 | -9% | -£61.49 | -£737.82 |
| Dec-15 | £670.69 | £743.97 | -10% | -£73.28 | -£879.38 |
| Dec-16 | £705.14 | £759.35 | -7% | -£54.21 | -£650.54 |
However, in the last five years, the rise in cost of both buying and renting has been similar with average rents rising by £107 a month from £605 and the cost of buying going up by £133 a month from £576.
Although mortgage rates have fallen since 2011, the actual monthly cost has gone up because other factors apart from the rate, such as the deposit and higher prices that first-time buyers have to pay for a home now compared to five years ago. In the study, Halifax estimates that a typical first-time buyer now pays 45% more for the same property compared to five years ago.
The costs include mortgage payments, household maintenance and repairs, insurance and the income lost by saving up for a deposit.
Martin Ellis, housing economist at Halifax, said: “Although the average costs associated with buying costs have grown at a faster rate than average rents over the past few years, owning a home is still the more financially attractive option.”
The average deposit put down by a first-time buyer on a three bedroom house was £30,770. However, this varies considerably depending on where you are. In London, the average deposit is £110,927, more than double the deposit needed in the south east of £51,082 and more than seven times the deposit needed by a first-time buyer on a house purchase in Northern Ireland, where just £15,830 is needed for the average deposit.
The study found that first-time buyer numbers are improving helped by government schemes such as Help to Buy and by the increased number of mortgage products homebuyers with smaller deposits can access.
There were 338,900 first-time buyers in 2016, up from 312,900 in 2015 and the highest level since August 2007, before the credit crunch started.
Ellis continued: “The size of deposit that is often needed is often a major barrier to overcome before the potential financial advantages of home ownership become clearer.
“While deposits can raise the upfront cost of buying, it is also an important and attractive form of longer-term savings for homeowners, and with rising house prices, it helps contribute towards higher housing wealth.
“While prices are at an elevated level, the number of first-time buyers getting on the housing ladder continues to rise and this group now accounts for half of all new home purchase financed by a mortgage.
“Improving economic conditions, lower rates and Government schemes such as Help to Buy, have played a key part in helping first-time buyers.”
In Scotland the gap between the cost of buying and renting is slightly higher, with buying costing £860 a year less than renting at £522 a month, compared to the average rental cost of £593 on the same property. This gap has narrowed by £50 a month in the last 12 months. At the emd of 2015, the monthly cost for buyers was £121 lower than renting.
Bank of Scotland director Graham Blair said: "This is the eighth year in a row that first-time buyers in Scotland are better off buying a property rather than renting.
"Over this period of time, buying costs haven't fluctuated much, resulting in the annual saving increasing from £458 to £860.
"While it's also the more financially-attractive option across the UK to buy rather than rent, it's more affordable in Scotland.
"Buying here is 12% cheaper than renting, compared to the UK's 7% cheaper."