Despite rising house prices the average tenant of a three-bedroom house would save £1,300 a year if they could buy it instead of continuing to rent, according to research from the country’s biggest mortgage lender, the Halifax. Even factoring in the cost of maintaining and insuring a home, the lender found that with today’s low mortgage rates first-time buyers pay an average £677 a month to own a three-bed home, against the £787 a month they would pay to rent the same property.
The gap has grown since last year, when it was £93 a month cheaper to own, according to the Halifax.
The figures continue the reversal since the depths of the credit crunch in 2009 when average rents were £37 cheaper a month than buying costs.
At the time, banks were reluctant to back any but the least risky of buyers and mortgage deals for anyone trying to get a foot on thehousing ladder were thin on the ground, with average interest rates of a hefty 4.92%; today it is 3.09%.
First-time buyers have been entering the housing market in growing numbers since early 2013 as lenders have become more willing to take on borrowers with small deposits, originally encouraged by the government’s Funding for Lending scheme which channelled cheaper money to homebuyers through the banks, and later the Help to Buy scheme offering government backing for 95% loans.
Between April and June this year 79,900 new buyers entered the market, 24% more than in the same three months of 2013. But those left renting have seen monthly costs rise to record levels. On Thursday the website SpareRoom.co.uk reported that average rents had increased by 10% over the past five years, while the amount available to tenants to spend on accommodation had stagnated.
For many the rising cost of renting has made it increasingly tough to save for deposits, leaving them trapped in the private rental sector.
Halifax’s figures show that buying has become cheaper than renting in all areas of the country except the East Midlands and East Anglia. In London, where both rents and house prices have soared since the financial crisis, it put the average cost of buying for those getting their first property at £1,308, while average rents on the same properties were £82 higher. The West Midlands had the same price differential, with buying costing £589 a month against an average rent of £671.
Craig McKinlay, mortgage director at Halifax said: “It is clearly encouraging that since 2009 there has been a significant decline in the cost of buying a home for those trying to get on the housing ladder.
“The improvement is due to a combination of lower mortgage rates and rising private rents. In contrast, market conditions for renters have deteriorated as rents have risen over the same period.”
The housing minister, Brandon Lewis, said the figures confirmed that the government’s approach was working. He said: “We’ve cut the deficit to keep interest rates low, built half a million homes and helped thousands of responsible, hard-working people purchase properties with smaller deposits through Help to Buy.”
However, Alex Hilton, director of the campaign group Generation Rent, called on politicians to take action to help those faced with rising costs. “It’s untenable to suggest this is an acceptably functioning market and in an election year, we expect parties to tell us what they will do to fix this. Ten million tenants are being milked like cattle and this cannot continue.”
Most homebuyers taking out new deals are fixing their interest rates as expectations grow of an interest rate rise from the current record low of 0.5%
The Guardian online 2014