The cost associated with buying a home in the UK is typically 14% lower than renting a property, according to new research by Halifax. The average monthly costs associated with buying1 a three bedroom house in the UK stood at £608 in March 2011; 14% (£98) lower than the average monthly rent paid2 on the same property type of £706. Three years ago, the average cost of buying was 43% more than the typical rent paid.
The significant fall in the monthly cost associated with buying compared to renting has been driven by the decline in the average mortgage rate since 2008. The mortgage rate3 for a new borrower has fallen to an average of 3.59% from 5.82% in March 2008, helping to reduce the average monthly mortgage payment by 39%.
Buying costs currently account for a smaller proportion of average UK disposable income4 (27%) than rental payments (31%). In 2008, buying costs accounted for a greater proportion of average disposable income than rent (56% against 39%).
Despite the improvement in the affordability of buying relative to renting, the tightening in lending criteria since 2007 has meant that many potential buyers have not attempted to enter the market. Nonetheless, market data5 shows that the average deposit paid as a percentage of the purchase price has been broadly stable since early in 2009 at around 27%, following a marked rise in 2008.
Transaction costs including stamp duty and the fees associated with home purchase also add to the overall costs of buying a property. The average stamp duty bill for a three bedroom house was £1,639 in March 2011 (although first-time buyers are exempt on purchases below £250,000); 18% (£358) lower than the average in March 2008.
Switching from buying to renting could release equity worth £55,000
Despite the advantages of buying versus renting, existing mortgage holders looking to switch to renting could enjoy the financial benefits of releasing the remaining equity in their property. Selling up your property and renting instead would provide an average equity of approximately £55,000. Investing this in a fixed rate bond would generate a monthly income of £114 to use to offset rental costs.
Suren Thiru, housing economist at Halifax, commented:
“The typical monthly mortgage payment has declined by over a third since 2008 as a consequence of falling mortgage rates and lower house prices. As such, the fall in the cost of buying a property 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.”
OTHER KEY FINDINGS:
Buying is now cheaper than renting in most regions
In March 2011, buying a house was more affordable than renting in ten of the twelve UK regions. In contrast, buying was more expensive than renting in all regions in March 2008.
Buying is currently most cost-effective compared to renting in London with the average borrower taking out a new mortgage to finance house purchase in the capital paying 12% less per month than the typical private tenant. Despite this, Londoners still pay monthly buying costs that are 68% above the UK average. Northern Ireland and Wales are the only regions where renting remains cheaper than buying.
Table 1 – UK average monthly mortgage and rental payments*
| Average monthly buying costs | Average monthly rental costs | % difference | |
| Mar-08 | £1,060 | £741 | 43% |
| Mar-09 | £741 | £729 | 2% |
| Mar-10 | £616 | £663 | -7% |
| Mar-11 | £608 | £706 | -14% |
Sources: Halifax, Birmingham Midshires and ONS
*Weighted average of regional data using housing tenure figures.
nb. Base rate changes impacted difference: March 2008 base rate was 5.25, falling to 0.50 in March 2009
Table 2 – Average monthly mortgage and rental payments by region, March 2011
| Average monthly buying costs | Average monthly rental costs | % difference | |
| North | £442 | £462 | -4% |
| Yorkshire and the Humber | £456 | £475 | -4% |
| North West | £484 | £517 | -7% |
| East Midlands | £475 | £480 | -1% |
| West Midlands | £526 | £530 | -1% |
| East Anglia | £576 | £580 | -1% |
| Wales | £470 | £463 | 1% |
| South West | £681 | £706 | -4% |
| South East | £801 | £835 | -4% |
| Greater London | £1,024 | £1,168 | -12% |
| Northern Ireland | £425 | £416 | 2% |
| Scotland | £514 | £531 | -3% |
Sources: Halifax, Birmingham Midshires and ONS
