Buying a house is now much cheaper than renting, according to mortgage lender Halifax, and the wheels of change may be beginning to turn in the housing market.
Halifax calculates that the monthly cost of buying the average three-bed home in the UK is now £600. To rent the same type of property would cost around £716, a whopping 16% more. This is in stark contrast to the peak of the property market in 2008, when a mortgage on the typical home cost around 29% more than renting.
The massive demand for rental properties came after the recession, when securing a mortgage became nigh on impossible for all but the wealthiest. High LTV mortgages were virtually non-existent during the credit crisis, making it almost impossible for first time buyers to take the first step on to the housing ladder.
Since the start of 2012, however, there are claims that first-time buyers are beginning to return to the property market. The biggest stumbling block for most young buyers was the huge deposits required by lenders, but 95% mortgages have become increasingly available in recent weeks, with building societies, including Ipswich, Newcastle and Skipton, launching first-time buyer loans that require just a 5% deposit.
The low interest rates are also fuelling the increase in first time buyer mortgages, as borrowing money is becoming a more affordable option, with 5% deposit mortgages now available with interest rates as low as 4.99%.
The massive rise in rents is forcing many back in to buying. According to Ben Thompson, MD of L&G Mortgage Club, January saw a surge in applications from first time buyers, particularly in areas of the country with high rental costs, such as London and Edinburgh.
“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.”
Halifax said that an increase in rents, and a fall in house prices of an average 11% since the peak, is now looking like changing the housing market once again. 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.”
Halifax have also noted 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 on going challenges in raising a deposit and the considerable uncertainty over the prospects for the UK economy, which have severely constrained housing demand,” said Ellis.