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First-time buyers better off buying than renting

First-time buyers better off buying than renting

Category: Mortgages

Updated: 16/02/2015
First Published: 16/02/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Are you thinking about getting on the property ladder? If so, it could be a very financially astute decision. Not only will you own a home rather than renting one, but it could actually be cheaper! Yes, research from Halifax has found that it's 9% cheaper to buy than rent, so by owning a home you could actually have more money in the bank at the end of the month.

Save £742 per year

According to Halifax's calculations, the typical first-time buyer (FTB) will be £742 better off per year compared with those who rent. This is based on the average monthly buying cost (including mortgage payments) for a three-bedroom house being £658 in December 2014, equating to £62 (9%) less than the typical monthly rent of £720 paid for the same property type.

However, the difference is narrowing. The price of a typical FTB home rose by 8% in 2014, and although average monthly rents have increased by £28 over the same period, average monthly buying costs grew by £46. This means the difference has narrowed from £80 in 2013 (meaning new homebuyers would have been 12% better off) to today's figure of £62, but nonetheless, the saving is still marked.

As an added bonus, buying is now more affordable in all regions in the UK, with buyers in London being the most better off in cash terms: they save an average of £112 per month (£1,338 over the year), with the average monthly cost of buying (£1,275) being substantially less than the amount paid by renters in the capital, with the average monthly rental price being an eye-watering £1,387.

Time to follow in their footsteps?

As you can see, buying your own home makes sound financial sense. This probably explains why the number of homebuyers is increasing – FTB numbers increased by an estimated 22% in 2014 with 326,500 of them getting on the ladder, the highest annual total seen since 2007 (359,900) – so it could be time to follow in their footsteps.

Craig McKinlay, mortgage director at Halifax, commented: "Average home buying costs are significantly lower than average rental costs, providing FTBs with a large financial saving if they can get on the housing ladder. While the timescales associated with raising a sufficient deposit to buy a home present a hurdle to many potential FTBs, the significant difference in costs between buying and renting, combined with still low mortgage rates, increased consumer confidence and the Help to Buy scheme, have all been factors driving the substantial rise in FTBs over the past two years."

There's never been a better time to consider making the jump to homeownership, particularly with mortgage rates being at record lows. However, while it may be more affordable once you're on the ladder, there could still be one thing standing in your way: building up that deposit.

This is still the biggest barrier to buying for many would-be homeowners, and considering how expensive it is to rent, it's no wonder so many find it difficult to save the necessary cash. But, that's no reason to give up on your dream – even saving little and often can make a difference, particularly with compound interest added into the mix, and if you've got a decent savings account, you could soon see that deposit fund mount up.

Once you've got that sorted it all comes down to finding the best mortgage rates, and with so many great deals to choose from, your mortgage repayments could be substantially lower than typical rents. You could easily be better off, so why not see what's out there?

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.