Buying a home can save £100 on renting it

Buying a home can save £100 on renting it

9:31 AM, 27th April 2011, About 13 years ago 3

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Due to low mortgage interest rates, buying a home is becoming more affordable than renting.

The monthly cost of buying a three-bed home is £608, £98 lower than renting the same property, according to a study by The Halifax.

The figures represent a turnaround considering only three years ago the costs of buying were 43% higherthan renting.

In the same time, average mortgage rates have slipped to an average 3.59% from 5.82%, helping to bring the average monthly mortgage payment down by 39%.

Three years ago, buying costs ate a larger slice of disposable income than rent – 56% to buy against 39% to rent. Now, the costs have slimmed down to 27% to buy compared with 31% to rent.

Nevertheless, buyers who switch to renting could generate a cash windfall of an average £55,000 by releasing the equity tied up in their homes. Stashing the cash in a high interest investment bond could lead to a £114 per month cash return.

Suren Thiru, housing economist at The Halifax, said: “The typical monthly mortgage payment has declined by more than a third since 2008 due to falling mortgage rates and lower house prices. The fall in the cost of buying compared to the average rent paid by tenants has been significant. Such a marked decline in mortgage costs has improved affordability for those able to enter the market as well as helping to ease the pressure on existing homeowners’ disposable income.

“Although the current trade-off between buying and renting is expected to narrow when interest rates start to rise again, the long-term benefits associated with investing in bricks and mortar are likely to ensure that buying will continue to be viewed favourably by many.”

Buying a home is more affordable than renting in 10 of 12 UK regions, with only Wales and Northern Ireland bucking the trend. Buying was more expensive than renting in all regions in March 2008.

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17:09 PM, 28th April 2011, About 13 years ago

Investing £55000 for what would be a 2.5% return seems to be a way of losing capital even by the government measures of inflation either CPI or realistically RPI, unless one anticipates property values to slump further.
The problem is in the south that for first time buyers to attract good mortgage interest rates they need around 15 - 25% deposit so are forced to rent. More significantly for the rest of us this does mean "the bottom rung of the ladder is broke" so maybe prices still have to fall?

Richard Greenland Richard

16:13 PM, 30th April 2011, About 13 years ago

This may be right Mark but as another blog in this edition says, lenders are preferring BTL LLs to FTBs so even if its cheaper they may not have the chance.

Mark Alexander - Founder of Property118

16:40 PM, 30th April 2011, About 13 years ago

Good point well made Rich. Last time it was cheaper to buy than rent was the early 1990's, about a year after the recession. At that time lender margins were high, borrowing was tough for everybody, but what happened next? As we know, prices rose quickly and lenders margins got thinner. So could this be the bottom of the market we've been waiting for? That said, there is always the counter argument that interest rates were on the way down at the end of the late 80's early 90's recession. The question in my mind is whether competition for new lending will lower margins at a similar pace to rate rises, thus creating an opportunity for all the people brave enough to borrow over the last two years to refinance for better deals. It's certainly a strange market with lot's of unchartered waters. When bank base rates do begin to rise how will this be reported? Will rises scare FTB's for a while longer, thus keeping the brakes on property values and fuelling further rental demand? When prices do eventually start to move upwards will we see FTB's rush to buy, thus causing another mini boom? Will it then be better to hold or to sell? Only time will tell.

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