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Buying now cheaper than renting, Halifax says

Halifax report comes amid claims that first-time buyers are beginning to return to the property market

Buying a house is now much cheaper than renting, mortgage lender Halifax has claimed, in a remarkable turnaround from three years ago when the soaring property market priced out all but the wealthiest buyers. Halifax calculates that the monthly cost of buying the average three-bed home in the UK is now £600, 16% cheaper than the £716 it would cost to rent the same type of property. That contrasts with the peak of the property market in 2008, when a mortgage on the typical home cost around 29% more than renting.

The figures come amid claims that first-time buyers are beginning to return to the property market. The biggest barrier for young buyers – the huge deposits required by lenders – is beginning to crumble as more and more 95% mortgages have become available in recent weeks. Since the start of 2012 several building societies, including Ipswich, Newcastle and Skipton, have launched first-time buyer loans that require just a 5% deposit.

Low-deposit mortgages virtually disappeared in 2009 during the credit crisis, but the number available has jumped from 70 to 95 in the last three months, according to analysis by financial information provider Defaqto.

Interest rates have also fallen, in part due to the ongoing problems in the eurozone, which has had the unexpected effect of lowering money market rates in the UK. Borrowers can now find 5%-deposit mortgages starting at 4.99%, compared with the typical 6.5% asked from first-time buyers in 2009.

Soaring rents are pushing many back into buying, according to Ben Thompson, managing director of L&G Mortgage Club, which sourced 12% of all mortgages in the UK last year. He said that during January it has witnessed a surge in applications from first-time buyers, particularly in London, Surrey, Sussex, Edinburgh and Glasgow.

“A lot of people were priced out of the market between 2003 and 2007, then, when the credit crunch came along, prices became more affordable, but they could no longer get a mortgage because of the deposits required. There’s huge pent-up demand out there from potential first-time buyers.”

Home ownership peaked in the UK at 71% of all households and has fallen to 67%, with the advent of buy-to-let and the financial crisis blamed for creating a priced-out “generation rent”. Last year Savills forecast that the continuing “mortgage famine” would propel a long-term switch into private renting, which has doubled from 7.5% to 15% of all households since the 1980s and which it said will rise to 20% in the next five years.

HSBC this week, in its annual Moving Home Survey, that the property market is still characterised by a “can’t buy, won’t sell” generational divide, with many under-34s citing high deposits and fear of unemployment as reasons why they are not buying. The housing stock is also being limited by contentment amongst the over-55s with their current property, the survey found. Critics also add that many first-time buyers fail to qualify for mortgages as they are unable to meet the rigorous credit standards required since the onset of the financial crisis.

But Halifax said that a surge in rents, plus an average 11% fall in house prices since the peak, has swung the equation back in favour of buying. Martin Ellis, housing economist at Halifax, said: “The affordability gains for buyers relative to renters in the last three years have been significant. The average mortgage payment has fallen dramatically over recent years as a result of falling house prices and mortgage rates. At the same time, rents have risen due to strong demand for rented accommodation.”

But Halifax added that there were only 510,000 home purchases with a mortgage in 2011, the lowest annual total since 1974 and 6% lower than in 2010. “Despite the improvement in the relative affordability of buying a home, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the UK economy, which have severely constrained housing demand,” said Ellis. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds