The Halifax just reported that the cost of buying a property for first time buyers is just over £100 cheaper per month than renting.
Halifax reviews the differences in cost between buying and renting property in a regular review. The report is based on comparing the cost of renting or buying a typical two bedroom flat for a first-time buyer across the UK over the last three years.
Figured into the costs of buying are - mortgage payments, income lost by funding a deposit rather than saving and spending on household maintenance and repair and insurance costs.
Taking all these factors into account the average monthly costs associated with buying a two bedroom flat in the UK for a first-time buyer totalled £567 in July 2011, 16%, lower than the typical rent paid on the same property type - £677 a month.
Three years ago, in 2008, when Halifax last conducted this same study, the average cost of buying was in fact £212 more than the average rent paid. This drop in the cost of buying represents a 2% fall in the amount spent by the average first time buyer. Contrast this with a rise of 6% for the average tenant.
Why has the cost of buying a property fallen?
The drop in the cost of buying can be attributed to both a drop in mortgage rates and a drop in house prices since 2008.
In mid 2008 the average rate for a mortgage was 5.91% whereas, a first time buyer looking to secure a mortgage now would be pleased to see that the average mortgage rate sits at 3.84%.
Across the UK, the price of a typical starter home has also fallen by 14% to £124,378 over the same three years.
However, it is worth noting here that the Halifax report is looking across the nation at averages and not in London, or even Ealing in particular. London’s property prices have resisted the losses in property values that other areas of Britain have experienced. And very popular areas, like Ealing, have maintained steady asking prices.
In fact, in Rightmove’s latest House Price Index, Ealing was the top performing borough in London for its asking prices. Rightmove also reported that Ealing’s house prices actually rose by 6.8% on 2010 prices.
Given Ealing’s popularity, asking prices in the borough have enjoyed a certain buoyancy that property values in other areas have missed out on.
So you might assume that the £100 in savings made by first time buyers as compared to renters may not be quite as high in Ealing. But you must take into consideration that the because of this same popularity that underpins Ealing’s sale prices, rental prices in Ealing can also be expected to be that much higher, offsetting the difference between buying a property in Ealing and renting one.
Why aren’t there more first time buyers making purchases?
While it is true that buying a house will cost a first time buyer an average of £100 less per month than the average tenant might spend, most would-be first time buyers are still struggling to amass the required deposit to take that first step on the property ladder.
With increasing numbers of lenders offering 90-95% mortgages, it seems that there should be an increasing number of first time buyers entering the market, but with all the doom and gloom heralded by the media and uncertainty in the European economic climate the number of prospective first-time buyers taking advantage of the savings of home ownership will likely remain subdued.
If you are currently renting or know someone who is, have you checked with an independent mortgage broker to see if you might be eligible for one of the 95% mortgages available? With fewer first time buyers vying for the properties available you would have the best chance of getting a property at the right price. And you would have that extra £100 a month to spend.
What are you waiting for? Call Northfields today on 0208 840 6666 and we can refer you to independent mortgage broker who can tell you about the financing available to you, while we find you the perfect property. Or register your details online here.