Cheaper to buy than rent in Scotland

Robyn Hall

September 17, 2012

The average monthly costs associated with buying1 a three bedroom house stood at £505 in June 2012; 7.4% (or £40) lower than the typical monthly rent of £545 paid on the same property type.

In 2011, the monthly cost associated with home buying was just 0.5% (£3) lower than renting. Over the past year, buying costs have dropped by 6%, while the cost of renting has increased by 1%.

In June 2012, buying a house was more affordable than renting in all 12 UK regions. In contrast, buying was more expensive than renting in all regions in June 2008. Scotland is the fifth most affordable location in the UK for buying compared to renting in percentage terms.

Overall, buying is most affordable compared to renting in London with the typical homebuyer paying 14% (£177) a month less than the average renter (£1,108 against £1,284). The disparity between buying and renting costs is smallest in the East Midlands with average monthly buying costs (£497) 2% lower than average monthly rental costs (£505).

In 2008 average home buying costs, at £911, were 62% (or £350) more than the average monthly rent paid of £561.

The substantial improvement in the affordability of buying relative to renting largely reflects a 45% drop in home buying costs since 2008; caused by a marked fall in both house prices and mortgage rates.

The average mortgage rate for a new borrower has declined by more than two percentage points over the last four years, from an average of 5.91% in June 2008 to 3.82% in June 2012. Over the same period, the typical Scottish house price has decreased by almost a fifth (18%). The typical rent paid has risen by 1.3% since 2010.

Despite the improvement in affordability, the number of buyers in the Scottish housing market has nearly halved over the last four years. There were 46,200 buyers (with a mortgage) in the twelve months to June 2012; 46% lower than during the same period in 2008 (86,200).

In the recent Bank of Scotland housing confidence survey nearly two-thirds of respondents (61%) highlighted concerns about job security as the main barrier to buying a home. Respondents also picked out the challenges in raising a deposit (52%) as a major hurdle to home buying.

Home buyers – both first-time buyers and homemovers – put down an average deposit of £28,354 in June 2012, equivalent to a quarter (25%) of the property price. The average deposit required has risen four-fold (by £21,717) over the past decade from £6,637 in June 2002.

Nitesh Patel, housing economist at Bank of Scotland, said: “It is clearly encouraging that there has been a significant decline in the cost of buying a home for those able to enter the Scottish housing market since 2008.

“The improvement is due to a combination of lower mortgage rates and declining house prices. In contrast, market conditions for renters have deteriorated slightly as rents have risen in the past two years.

“Despite the improvement in buyer affordability, housing market conditions in Scotland remain difficult. Those getting on the housing ladder still face challenges, most notably in getting a deposit, and this challenge, along with the considerable uncertainty regarding the economic outlook, is still contributing to subdued housing demand.

“However, it is worth noting that once homebuyers are on the housing ladder, their monthly costs are notably lower.”

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