The monthly cost of a home for a first-time buyer is £110 less than if they were renting.
According to new research by Halifax, the average first-time buyer will spend £567 a month on mortgage repayments and other costs, while rent for the same property would be £677.
The 15% differential is in contrast to 2008 when the average cost of buying was 29% (£212) more than renting.
The decline in costs for a first-time buyer has been driven down by falls in mortgage rates and house prices. Meanwhile, rents have been rising.
The average mortgage rate for a new borrower is now 3.84% compared with 5.91% in mid-2008. The average first-time buyer house price has fallen by 14% over the same period to £124,378.
Although the size of the deposit needed today is £27,127, equivalent to 20% of the property value, this is still a little lower than the average of £28,751 in July 2008.
Despite the greater affordability, the number of first-time buyers has fallen by almost a quarter since 2008. There were 84,000 first-time buyers in the first half of this year – 23% lower than in the same period in 2008.
Around 60% of all mortgage applications are currently rejected.
The Halifax says that buying is now cheaper than renting in every region of the UK – but in the South-East it is a close run thing, with the cost of buying only 1%, or £9, lower than renting.
As well as taking mortgage payments into account, the Halifax also included income lost by funding a deposit, insurance costs, and costs of maintenance and repair.
Nigel Stockton, financial services director at Countrywide, the UK’s largest mortgage broker and property services group, said: “Whilst lenders are becoming much more competitive with the mortgage products on offer, it is the level of mortgage deposit that consumers are expected to find and loan to values which now remain the critical issue, not affordability.
“This is definitely holding back the housing market and we expect current lending levels to be lower than in 2010 and there are no signs that this will change in the short term.
“The Council of Mortgage Lenders has reaffirmed its lending forecast of £140bn for 2011. This looks optimistic to Countrywide.”
Comments
FBA
Rents also rising steeply here, though it's not something I actively encourage for renewals where we have good tenants.
Unhappy Chappy
I'll add a Section 8 to FBA's Section 21 with full insurance for legal costs. They'll never get to buy or rent again with a CCJ. If they decide not to pay one penny after signing it is exactly what they deserve.
The one thing about the high demand for rentals is that we can afford to be very choosey. We only have two lets to people on benefits from our early days but recently I was told by the Council that they have a little pot of money put by for those who may lose their tenancy due to benefit cutbacks. Interesting ..
It is obvious, no?
Because if prices continue to fall then everybody is a winner.
Happy days all round.
Truly, if it is "happy days" I am pleased for you. It is good to see people who are happy with their situation and will naturally develop a better quality of life and to achieve all round satisfaction.
However, for someone as happy as yourself, I am baffled by your need to post on this site about the need/want for prices to crash - in a bit of a rude and spiteful manner on other threads.
Let's spread the "happy days" message through your posts, too.
@Aos
With the 40 times I was forgetting about the monthly payment and just concentrating of the up front deposit required. Just as valid as the other way around I reckon.
I'm happy renting at the moment thanks. Property prices have fallen by about a third in real terms since peak, my rent for a place apparently "worth" £250k is a paltry £600pcm and cheaper places are coming up all the time due to healthy competition between amateur landlords fighting over 3% gross yields.
Happy days.
Chip Douglas - If renting is that much cheaper (I know you got carried with the "40 times chaper" - I hope!), then it is problem solved for you.
Continue renting for the rest of your life and you will save all of that money because renting is much cheaper. Simples.
I am suprised that it appears cheaper to buy then rent at the moment. £670 pcm seems expensive for a FTB property to rent. Ive not long paid my mortgage off and am looking for a second house/or upsize but in my neck of the woods (and in my price bracket), it is far cheaper to rent than to buy. Look at this property which is typical of what you can rent for £1200 per month.
http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=1&pid=9621768
or of course you can buy exactly the same house for £495k:
http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=0&pid=8531926
which is cheapest renting it or buying it?
Unhappy Chapy: "Do al/any agents carry out a new credit chek on sitting tenants when rents are increased
People find themselves unable to pay rent for many reasons naughtiness is not always one of them. How about redunduncy, change of job or unexepected expenses."
If someone is made redundant, it is reasonable to expect them to actually advise their landlord and/or Agent of this; similarly a change of job circumstances if it affects the monthly incomings enough to make either current or future rent obligations unsustainable. Unexpected expenses are...erm... well... they are unexpected - therefore hardly going to show up on a credit check - are they?
You have to credit tenants with a modicum of common sense, Unhappy. If they are currently stretching their finances to rent a property, they know it will only get more expensive. IF money gets tighter, will they drop a mobile phone contract? Sky HD with Sports? The fags? Beer?
No - they move the Landlord down the priorities list instead...
As far as tenants go, there are bad; there are good. If they are bad, expect them only to get worse; hope that the good stay good - and remember that all the checking and referencing in the world will not throw up an axe-murderer in the making...
@PeeBee
That doesn't make sense though does it? You don't pay your deposit back in installments along with your mortgage payment.
Barry was on the right track but with the figures above, should read:
Renting 40 times cheaper than buying.
Chip Douglas: "It may be but what abot the deposit? Quote should read:
"If we ignore 20% of the price, the monthly cost of a home for a first-time buyer is £110 less than if they were renting." "
Direct from the story - "...the Halifax also included income lost by funding a deposit,..."
Proof that HPCers REALLY DO only read what they want to see - and build their argument upon unstable foundations... ;o)
Eastenders is 10 times funnier than 'Barry Chuckle' - but INFINITELY more believable...
Renting is 10 times cheaper than buying
"The monthly cost of a home for a first-time buyer is £110 less than if they were renting."
It may be but what abot the deposit? Quote should read:
"If we ignore 20% of the price, the monthly cost of a home for a first-time buyer is £110 less than if they were renting."
Well yes. But once interest rates are lifted off their 'emergency' level things will look very different. And renters don't have to worry about 30% downside in capital values widely expected in the City. It is a cheap put ...
@Unhappy Chappy
Watch out!
FBA and AofS- of course people should keep up with the rent, however the ability to do so is another thing.
Do al/any agents carry out a new credit chek on sitting tenants when rents are increased
People find themselves unable to pay rent for many reasons naughtiness is not always one of them. How about redunduncy, change of job or unexepected expenses.
Arrears will be get worse with increased in rents and caps on benefits.
I am in a fortunate position i dont pay rent and dont have a mortgage. I live in tent ;0)
Thank you GP58. Completely my error.
FBA - I am agreeing with everything you say today! Not paying your rent is a pretty poor response if you can't afford what is being asked. If these people GENUINELY believed it was 'too high' surely they would still pay the previous amounts rent anyway? The fact they are paying nothing shows they are sponging, free-riders.
If you can't afford, look elsewhere. So many people are too quick to pass the blame and consequence to other parties. Take responsibility.
You must keep your payments up Unhappy (rant) or a section 21 will quickly wing ita way to you.
Sure, you can stuff about and delay the inevitable for a short while (that's short term). Long term will be.... unable to rent in the private sector, most definately unable to borrow and buy.
Not paying the rent is not a good option.
For Landlord, insure against the odd naughty tenant that may do this too you.
Aceof Spades-- You really need to read the article again.
The £567 quoted is for mortgage payments + OTHER COSTS. ( the Halifax also included income lost by funding a deposit, insurance costs, and costs of maintenance and repair.)
That will bring the value of the house to no more than £105K.
I doubt very much that the average rent for £105K houses
is £677 per month.
So in short, I think I'll rent a little longer to see how this all develops...
; )
Meanwhile, BTL landlords are worrying:
http://www.residentiallandlord.co.uk/news2844.html
Boomers are waking up to the fact that high house prices isn't all rosy news (last paragraph):
http://www.telegraph.co.uk/property/8730895/Britain-has-too-few-homes-for-sale.html
And the banks are so concerned about people being behind with their mortgages, they're ringing people up and telling them:
http://www.dailymail.co.uk/news/article-2031934/Banks-warn-home-owners-cut-spending-risk-losing-house.html
Even the BBC have started spotting that house prices don't always go up:
NE England leads falls says Land Registry
http://www.bbc.co.uk/news/mobile/business-14678794
They even unwittingly undermine the lack of housing supply theory in this piece too:
http://www.bbc.co.uk/news/business-14715173
(do the maths - 1.5 million new households created in ten years require 150,000 new houses to be built each year. Apparently the lowest figure achieved in the last decade was in 2010, when 134,000 homes were built, or 90% of the amount needed that year. Presumably the target was more exceeded in the other years then...)
Hi Ray.
Here's another alternative scenario for you, strangely enough from the Daily Mail...
It's called Why Britain Is Heading For A Property Crisis
http://www.dailymail.co.uk/money/news/article-2031172/MONDAY-VIEW-Why-Britain-heading-property-crisis.html
Here's one too from the business folk at City AM, who are ahead of the Daily Mail and say the crisis is already here:
http://www.cityam.com/news-and-analysis/allister-heath/house-price-slump-already-upon-us
Hello HPCers. An alternative forcast!!
House prices can only fall so far and we are approaching that level this year and lenders will start lending. (Not at 125% and 7 times income).
Vendors will not sell at a greatly reduced price if they have a mortgage that cannot be discharged (probably cannot afford to at the moment if they purchased during the last 5/10 years on a 25 year mortgage) and Builders will not build unless they can sell at a reasonable profit.
Many, not all, first time buyers in decently paid employment could afford the actual mortgage repayments if offered with a ten percent deposit, a ‘reasonable’ interest rate and without extortionate ‘arrangement fees’ .In my view the main reason that the property market is in the doldrums is the attitude of the mortgage providers. They used to operate on a ‘considered risk’ but now operate on a ‘negative risk’ basis. Whilst a twenty five percent plus deposit is required the market will stall.
FBA - I know of tenants not paying at all after signing agreements because landlords have raised rates above what they can afford....not a nice scenario and it will happen more and more Im afraid.
Price: £124,378
Deposit: £27,127
Term: 25 years
Santander will give you a 3 year fixed rate @ £568.
4 years @ £591
5 years @ £608
These aren't interest only either. The article is correct.
The deposit is relatively large. The HPC posse seem to always shoot down the previous lending habbits of the 2007 period, so you would hope, with that belief in mind, they do have some sort of deposit at hand.
FBA has been saying that for a while now and is spot on. Rent is definitely going up and will continue to do so.
Pee Bee - you'll notice how the first story hasn't attracted any of the more usual bullish posters either. Perhaps this is the way forward? An enforced separation - one story for the HPCers to drool over and one for the bulls to feel smug about.
In my agency we are renwing tenancy agreements at 16% or more as they end their term, and tenants are paying as the supply of renatal property to the market cannot meet the huge demand.
Rents are on the way up., and up, and up some more.
How long for? who knows?
Renting is going to be a very expensive alternative.
The Daily Mail got their knuckles rapped from the Press Complaints Commission for running a similar story (basically a Zoopla press release) without mentioning that the mortgages they were referring to were Interest Only. I don't see that specified above either.
Obviously Halifax has also seen the secret document that says interest rates are going to stay at 0.5% for the next 25 years too.
I'll echo Outsider's point too - what about capital depreciation?
The piece reads like Halifax desperately touting for business to me.
This just about stacks up, doesn't it?
Saving £110 a month equates to 1.1% per year of the £124,000 average FTB house price quoted above - will the price drop by more than that, on average?
Innit funny how THIS story does not attract our HPC contingency of readers - yet the one above has them all agitated and ready to proclaim further doom and deny anything that may be seen by homeowners as positive news...?
Come on, HPCers - how does it make you feel knowing that you might actually be able to now buy a property and SAVE MONEY??
Add THAT news to the threat of price increases you have already seen (for London, you don't need to be told that, of course...) - surely you must all be trawling frantically through Rightmove making a list for viewing appointments... ;o)