Buying 16pc cheaper than renting

Yuan Phoon

January 30, 2012

The typical monthly cost of buying a three bedroom house in the UK was £600 in December 2011.

Three years ago the average cost of buying was 29% higher than the average rent paid. But homebuying costs have fallen by more than a quarter since 2008, driven by a decline in the average monthly mortgage payment of nearly a third 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% in 2011 from 5.75% in 2008, while the average house price has dropped by 11% over the same period.

The average cost of renting has risen by 9% since 2009. Halifax said the 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% whilst the typical cost of renting has risen by 5%, continuing the trends seen in 2010.

Halifax said the number of buyers entering the market has continued to decline despite the improvement in the affordability of buying compared with renting since 2008. It estimated that there were around 510,000 home purchases with a mortgage in 2011: the lowest annual total since 1974 and 6% lower than in 2010.

Much of this decline was attributed to an increase in the size of the deposit required, with the size of the average deposit put down more than doubling over the past decade.

In addition, higher costs relating to moving home such as stamp duty and estate agents fees had also added to the overall cost of home buying.

Martin Ellis, housing economist at Halifax, said: “The affordability gains for buyers relative to renters in the last three years have been significant. 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.”

Sign up to our daily email