First-time buyers would pay less, on average, on mortgage payments if they bought a property than if they rented one, according to new research.
The findings from Santander show that homeowners could save £189 a month, or £2,268 a year, if they could afford to buy a property. The average monthly rent in the UK is currently £912 per household, compared to monthly mortgage repayments of £723, based on an average mortgage rate of 2.48%.
But although it may be cheaper to own a home, saving up for a deposit is one of the key obstacles to homeownership, with buyers typically paying a whopping £51,905 for a deposit on their first home. Two in five (38%) first-time buyers would consider moving back in with their parents to save for a deposit, while 21% would give up alcohol.
Londoners could make the biggest saving, as the monthly rent is typically £289 higher than monthly mortgage payments, or £3,468 more a year. In contrast, those living in the East of England will see little difference between the two options, with homeownership costing £43 a month less than renting.
Kevin Roberts, director of Legal & General Mortgage Club, comments: “Unlike renting, a homeowners’ deposit and mortgage payments help build up equity, and the chance for a borrower to own their home outright. However, for many aspiring homeowners, saving for this initial deposit is easier said than done, with many having to rely on the Bank of Mum and Dad.
“One of the challenges many would-be homeowners face is putting enough money aside for a deposit, while balancing other monthly outgoings such as rent, bills, and recreational spending. With over 40% of income spent on rent, this is ultimately leading to some borrowers who may appear perfectly lendable to on paper, remaining in the private rental sector.”
Ishaan Malhi, chief executive of online mortgage broker Trussle, adds: “It can be extremely difficult for anyone renting to get on the property ladder, especially in London where the average person spends virtually half of their net earnings on rent.
“For those who feel as though they're locked out of homeownership, there are a few options to consider that'll make it easier to get on the ladder. One route is to club together with one or more people to split the cost of the deposit and share the mortgage. There are also useful saving tools worth considering, such as a government-backed Help to Buy Isa, which will boost your savings by 25% up to £12,000.
“Once you’re in a position to look for a mortgage, go through a broker with access to most of the market rather than going direct to a lender, to increase your chance of finding the right deal and ultimately save money.”
|Comparison of average rental and mortgage costs by region|
|UK region||Average rent||Average FTB house price||Average FTB deposit||Average monthly FTB mortgage repayment||Amount better off buying (per month)||Amount better off buying (per year)|
|Yorkshire and The Humber||£623||£143,810||£27,527||£521||£102||£1,224|
|East of England||£622||£252,158||£59,553||£862||£43||£516|
|FTB stands for first-time buyers. Source: Santander Mortgages, May 2018|