Why first-time buyers are better off than renters

Are you better off becoming a first-time buyer or continuing to rent property? It’s a big financial question, as we weigh up the pros and cons of property ownership versus renting.

New research from Halifax has found that first-time buyers are saving more than £800 a year compared to renters.

The data shows a widening gap between buying and renting, which has grown by 8% in the past year.

The latest Halifax Buying vs Renting Review looked at the housing costs associated with a mortgage for a three-bedroom home, compared to the average monthly rent paid for the same type of property.

It found that monthly rental costs have risen by 10% to reach £821 in the past 12 months.

However, monthly buying costs have only increased by 1% during this time, to reach £753. The gap closed then because of higher average mortgage payments and a rise in the deposit amount required.

Back in 2019, the difference between buying and costs was only 1%, down sharply on a year earlier, when it came in at 10%.

Looking back at the past decade, the average monthly costs associated with buying a home have increased by 31%. During the same time, renting costs were up by 36%.

The biggest contrast was seen in 2015, when the gap between buying and renting costs reached 17%, or £123 a month.

The average first-time buyer deposit has increased by £11,677 since the onset of the pandemic last March, to reach a total of £58,986. The average mortgage payment for a first-time buyer is also higher, but low interest rates mean that mortgage payments have increased by less than rental costs.

Andrew Asaam, Mortgages Director, Halifax, said:

“Lockdown restrictions may have held back renters planning to buy a property during the past year with its practical challenges, and while the stamp duty holiday race has helped drive record levels of mortgage approvals, the cost of renting has crept up in the same period.

“Although the biggest savings to be made – of around £5,000 a year – are unsurprisingly in the capital, homeowners in the South East, East Anglia and Scotland are also making the biggest savings a year, around £2,000 on average compared to their neighbours who are renting.

“Raising a deposit is still the biggest challenge for those looking to get on to the property ladder, but the average first home deposit has gone up by another £11,000 since the start of the pandemic.

“We know that first-time buyers will benefit from steps that make finding a deposit more of a reality and the new Help to Buy Mortgage Guarantee scheme could be a gamechanger for those saving hard to take the first step and often paying rent at the same time. We have also committed to lending £10bn in 2021 to help people buy their first home this year.”

The research found that buyers in London are, on average, £4,606 a year better off than those renting.

Buyers in the South East are £2,578 a year better off, and those in East Anglia are £2,109 a year better off than renters, on average.

The tightest gap between buyer and renting costs was in Northern Ireland, where buyers are £539 a year better off.