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Save £1,300 a year by buying instead of renting

Save £1,300 a year by buying instead of renting

Category: Mortgages

Updated: 28/08/2014
First Published: 27/08/2014

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 It is now over 6 months old so the content may be out of date.

Is it cheaper to buy instead of rent? It's a question that's often on the minds of renters and would-be homeowners, but at the moment, it's one that can quite easily be answered – yes, it's cheaper to buy, and by a fairly large margin.

According to research from Halifax, the cost of a first-time buyer (FTB) owning a home in the UK is, on average, £110 per month lower than renting. This works out as being £1,316 less per year (or 14% cheaper), based on the average monthly mortgage costs of a typical three-bedroom house: Halifax's calculations put this cost at £677, compared with the £787 per month renters pay for the same property type.

It's changed a lot in the last few years, too, and it's only recently that the cost of buying has become cheaper than renting. Five years ago the average cost of buying was actually £37 a month more – it cost £734 per month to buy compared with £697 per month to rent, equating to an extra £444 (or 5%) over the year.

But just why has the cost of buying fallen so significantly? Well, a lot of it comes down to the just-as-significant decline in mortgage rates since 2009. The mortgage rate for a typical FTB has fallen to just 3.09%, down from 4.92% in June 2009, which has helped to reduce the average monthly mortgage payment by £57 (8%). This, combined with average rents also increasing over the period, means it's now a lot cheaper to buy than rent.

This perhaps goes some way to explaining the increase in first-time buyers over the last year, with FTB numbers having risen by 29% over the period – in the 12 months to June 2014, there were 301,300 house purchases made by those buying their first home, compared to 233,400 a year earlier. It's almost double the figure of five years ago (155,700) and, just showing how far the FTB market has come, these buyers now account for 45% of all house purchases, compared with 38% in 2009.

Craig McKinlay, mortgage director at Halifax, commented on the findings: "Buying costs have been remarkably stable for much of the past five years making home ownership a more attractive option. With greater availability of mortgages that require smaller deposits, the property ladder has also become even more accessible for those who can afford the monthly costs of owning but had previously not been able to save the necessary deposit."

All in all, it looks like it's a great time for aspiring homeowners to make their move. More of them are able to do so thanks to lower mortgage rates and rising rents encouraging them to take the plunge, and given that buying costs are so much cheaper, it could make a lot of financial sense too.

However, it's important to remember that this is only looking at the face value. There are plenty of other costs to consider when buying a home, all of which will need to be factored in to your calculations, including maintenance, the purchase of furniture and appliances, not to mention the biggest barrier to owning a home in the first place – that all-important deposit.

That's where a suitable savings pot will come in. You'll need to set aside a significant amount on a regular basis to build up your deposit (unless you're lucky enough to have the bank of Mum and Dad to fall back on), and from there you'll need a considerable emergency fund to prepare yourself for anything your new home could throw at you.

But, if you have the funds in place to buy that first home – and to continue investing in it thereafter – there's no denying that it can be an awful lot cheaper to buy rather than rent. There's one key thing you need to remember, of course, and that's the fact that you'll need the right mortgage to ensure those monthly costs remain lower.

Rates are slowly starting to creep up, which means now could be the time to make the move before they rise much further. So, if you're looking to realise your dream of homeownership, make sure to check out our best buy tables to find the mortgage that can bring that dream a little closer.

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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.