Is it more affordable to buy than rent?

Try as we might to adopt a more European attitude and feel totally comfortable with renting our entire lives, many of us aspire to homeownership. It’s an aim that stems back to the 1980s when the then Prime Minister, Margaret Thatcher, set out to create a ‘property-owning democracy’.

Without going into politics in finer detail, buying a place to call our own has remained the nirvana but a wide variety of numbers have to stack up for this to be possible. It certainly looks like the sums will work out in favour of many potential purchasers this spring.

Zoopla confirmed those who buy a property will spend less per month than those who rent. The portal’s maths found the typical first-time buyer mortgage repayment is an average of £1,038 per month. In contrast, the average rent across Great Britain is £1,248 per month – 20% higher than a mortgage payment. 

The portal does make quite a sweeping claim so it’s good to examine the small print. Zoopla factored in a 30-year mortgage with an interest rate of 4.5%. A shorter term and a higher interest rate would immediately skew the figures.

The portal also assumed the first-time buyer was able to put down a 20% deposit on a typical first-time buyer priced property bought for £253,700. As such, the average purchaser will need to start with savings equivalent to £50,740. A 20% deposit could, however, be as little as £27,700 in the North East and as much as £83,400 in London.

Granular detail also revealed there is still one UK region where it is more expensive to buy than rent and that’s in the East of England. Here it is 9% more expensive to purchase a property than rent one. 

The biggest difference in cost between renting and buying was noted in Wales. First-timer buyers here are saving an average of £193 a month by saying goodbye to tenant status. In Scotland, the monthly saving is £157.

The good news for prospective first-time buyers should be caveated. While mortgage repayments calculated with a 4.5% interest rate are affordable to many – and indeed are cheaper than monthly rents in many areas – lenders are still looking for purchasers to demonstrate they can afford higher repayments.

A stress test will test a buyer’s finances to see if they would struggle with mortgage repayments if the applied interest rate increased. At the moment, some lenders are testing affordability if the rate rose to 8%.

This may change in the immediate future as the FCA - the UK’s financial services regulator – has asked lenders to relax their stress testing. It is thought a test rate of 6-7% would help more first-time buyers access home loans.

If you are a first-time buyer and would like to see if it’s now cheaper for you to buy a home of your own rather than rent, please get in touch. We can help you work out some initial figures, show you properties that are in your budget and introduce you to a mortgage adviser.