Low interest rates and falling property prices mean that buying a house or flat is over £100 a month cheaper for first-time buyers than renting a property is.
New research shows that the average monthly cost associated with buying a two-bedroom flat for a first-time buyer is around £567. This is £110 lower than the typical rent paid on an equivalent property, according to Halifax, which conducted the research.
The cost of getting onto the property ladder has fallen by 40 per cent since 2008 due to low mortgage rates and a depressed housing market. By contrast, the price of renting has fallen by a fraction of that amount and has even started rising again over the last year.
Suren Thiru, housing economist at Halifax, said that the current economic climate is favourable for prospective first-time buyers.
“The recent decline in the cost of buying a property for first-time buyers compared to renting has been substantial. and reflects the drop in both mortgage rates and house prices since 2008 as well as a marked increase in the average rent paid over the last year,” said Ms Thiru.
Mortgage rates have reduced dramatically over the last few years due to record low interest rates of 0.5 per cent. The average mortgage rate for a new borrower is 3.8 per cent, down from 5.9 per cent in mid-2008, according to Halifax. At the same time the average price of a typical first property has fallen by 14 per cent to £124,378.
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The Government’s move to temporarily increase the stamp duty threshold is also helping first-time buyers.
In a bid to stimulate the housing market, in March 2010 George Osborne raised the threshold at which stamp duty is payable for first-time buyers from £125,000 to £250,000. Halifax estimates that 95 per cent of first-time buyers are now exempt from paying stamp duty.
However the favourable conditions may not last. If interest rates were to rise by 1.5 per cent then buying would be level with renting again.
Ms Thiru also said that the uncertain economy is putting many people off entering the property for the first time.
“While these affordability gains are welcome, conditions in the housing market for those looking to get onto the property ladder remain challenging,” she said.
Halifax's calculation of the monthly cost associated with buying a flat does not include the deposit, which averages £27,127 for first -time buyers. However the lender's calculation does include around £23 a month relating to interest that would be lost on that sum of money if it was saved in an interest bearing account rather than used as a deposit.
Traditionally, the cost of renting has been cheaper than the cost of buying. In 2008 the average cost of buying a house was £212 a month more than the average rent in the UK.
by the telegraph
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