Has buying become cheaper than renting?

The stats have spoken and Zoopla said it is now cheaper to buy a property than it is to rent. The key metrics include the average first-time buyer mortgage payment, the average UK rent and the average first-time buyer house price.

When the numbers were crunched, it worked out 20% less expensive to be a homeowner than a tenant. If you’re looking to see how the figures match up to your own personal circumstances, here are Zoopla’s headline figures:

• Average first-time buyer property bought for £253,700

• Average first-time buyer mortgage payments of £1,038 per month

• 20% deposit paid, equivalent to £50,740

• Mortgage term of 30-years at 4.5% interest

• Average monthly rent of £1,248 

Of course there are variables, including the deposit amount, the price of the property being bought, the location of any home in the equation, the term of the mortgage and the interest rate applied.

As such, there is a big North-South divide when it comes to just how much cheaper it is to buy than rent. For example, in the North East, Yorkshire & Humberside and the North West, it is 24%, 21% and 21% cheaper to buy, respectively, due to lower property prices.

Although there are still savings in the South, margins are much slimmer. It is just about cheaper to buy than rent in London, the East Midlands and the South East (6%, 1% and 1%, respectively). Only in the East of England is it still more costly to purchase a property than rent.

Set up costs

Whether you are buying or renting, there are set up costs to factor in. Although it is more expensive to become a homeowner, the pay off at the end is much higher, with outright ownership and the possibility of a profit, in the shape of appreciation. Additionally, there is much more autonomy and freedom when you own your own home.

Homeownership costs

• Deposit: this is a percentage of the purchase price. When a typical first-time buyer property costs £253,700 (according to Zoopla), a 10% deposit will be £25,370 and a 20% deposit is equal to £50,740. The buyer will need this as a lump sum when contracts are exchanged but the good news is a deposit reduces the amount of money a purchaser has to borrow.

• Stamp duty: there is a discounted stamp duty rate for first-time buyers – homes bought for up to £300,00 are stamp duty free. After this, a 5% tax is applied to the portion of the property worth between £300,001 and £500,000.

• Mortgage arrangement fee: most lenders charge for their services and generally this cost is around £999 or £1,499. This is a one off fee and if the buyer doesn’t have the money to cover this upfront, it can be added to the loan and repaid over the term of the mortgage. 

• Survey fee: buyers will need to know the condition of a home they are purchasing, but how much a survey will cost depends on the amount of detail they want. The most basic survey will cost in the region of £300-£400, while the most in-depth can have a price tag of around £1,500.

• Legal fees: it’s essential to have a qualified conveyancer oversee the purchase of a property as it’s a legal transaction and mistakes can be very costly. As a property buyer, expect to pay legal fees in the region of £1,700 and £2,300. 

• Home insurance: almost every mortgage lender will insist the purchaser takes out home insurance in order to grant approval. MoneySuperMarket currently has the average buildings-only policy at an annual cost of £229.45.

Renting costs

• Tenancy deposit: the Tenant Fee Act 2019 reduced the number of costs a landlord or letting agent could charge tenants but that doesn’t mean renting is cost free. The largest set up fee is the tenancy deposit, which is capped at 5 or 6 weeks’ of rent. Using Zoopla’s average monthly rent of £1,248, a tenant can expect to pay a deposit of around £1,431. Although this cost is refundable at the end of the tenancy, deductions can be made for any property damage or missed rent payments.

• Holding deposit: there is usually a refundable cost to reserve a rental property, although this fee is also capped at one weeks’ worth of rent. Using Zoopla’s average monthly rental figure, a typical holding deposit would be £286.

If you are in a position to buy your first property and would like advice and a list of available starter homes for sale, get in touch.