Five years ago renting was considerably financially more attractive than buying. In June 2008 the average monthly cost associated with home buying was £352 (49%) higher than renting – equivalent to an annual cost difference of £4,226. The substantial improvement in the affordability of buying relative to renting since 2008 largely reflects a 37% decline in home buying costs over the past five years.
Both lower house prices and mortgage rates have contributed to making home buying more affordable. The average mortgage rate for a new borrower has fallen by 2.31% over the past five years from 5.88% in June 2008 to 3.57% in June 2013. The average house price has fallen by 13% over the same period. The typical rent paid, however, has increased by 13% (£88) since June 2010.
Buying a house is more affordable than renting in all but two regions in the UK. Average monthly buying costs in both Yorkshire and the Humber and Wales are marginally higher (1%) than average monthly rental costs. On the other hand, buying is most affordable compared to renting in percentage terms in Northern Ireland where the typical homebuyer paying 11% (£47) a month less than the average renter (£369 against £415). In cash terms, the average monthly cost of buying in London is £98 lower than renting.
Despite the improvements in mortgage affordability, the number of buyers in the UK housing market in the twelve months to June 2013 was 44% lower (959,770) than in the same period in 2008 (1,711,000). However, there are signs of increasing market activity, with the number of home buyers rising by 3% compared to the same period in 2012.
The recent Halifax housing confidence survey shows that sentiment regarding the housing market has improved markedly in recent months. This increase in optimism is partly due to house prices picking up so far in 2013. However, the survey shows that worries over job security and raising a deposit remain key obstacles to market activity.
The average deposit put down by homebuyers has grown to £40,628 in June 2013, up from £38,893 a year earlier.
Martin Ellis, housing economist at Halifax, commented:
“A combination of lower mortgage rates and declining house prices has substantially reduced the cost of buying over the past six years. Nevertheless, the number of home buyers in the twelve months to June 2013 was nearly half of that in 2008, which will have been constrained by worries over job security.
“We understand that building a deposit is still a key challenge for those looking to get on the ladder, although once this has been achieved, buying is much more affordable. Whilst optimism in the housing market has improved in recent months these factors remain key obstacles to home purchases.”
