Buying is £500 cheaper per year than renting

Raising a deposit, finding the right property, arranging a mortgage… getting on the property ladder is hard work, but it can save you money every single month.

A new analysis shows that buying your first home is around £500 cheaper per year than renting.

The Halifax Owning vs Renting Review found that the monthly cost of owning a home for first-time buyers is now £971. This compares to £1,013 for the equivalent property on the rental market, a difference of £42 or 4%.

The report is based on housing costs for first-time buyers with a mortgage on a three-bedroom home, compared to the average monthly rent for the same property type.

Although there are savings to be made, the gap is down from its peak in 2016, when owners were saving as much as £1,567 annually.

Regional variations

Across the UK, the biggest cost difference in percentage terms can be found in Scotland, where renters pay an average of £918 per month, compared to £727 for homeowners — a saving of 21% for those on the property ladder.

In absolute terms, the gap between annual rent and ownership is greatest in London, with homeowners in the capital saving nearly £3,000 annually compared to those renting similar properties.

It’s a different story in the East of England, the only part of the UK where it is more expensive to own a property than rent the equivalent. Homeowners there now pay £90 more each month, on average, than those renting.

“Of course, making the move from renting to home ownership can be difficult for many, as raising a sufficient deposit and then finding the right property can be challenging,” said Kim Kinnaird, mortgages director at Halifax.

“While a predicted fall in house prices this year will be welcome news for those looking to buy their first home, it doesn’t change the fact that getting on the property ladder remains expensive — a problem that is compounded when rents are high, impacting the ability to save.”

First-time buyer mortgage applications on the rise

The number of mortgage applications made by first-time buyers increased by a third (33%) from January to February, according to newly released CACI data analysed by First Direct.

Reflecting a significant increase in the average loan value, the total value of these applications grew by an even higher 40%, to £5.6bn — the highest recorded since September last year.

This pickup in activity was reflected across the overall market, with the number of applications rising by 36% compared to January and the total value up 39% to £17.7bn.

The average loan size for a first-time buyer reached £202,835 in February, up from £194,582 as of end of January, First Direct found. This was the first time since September that the average application value exceeded £200,000.

“Both the rising cost of living and the broader economic climate will be contributing factors to the average first-time buyer loan coming down significantly between October 2022 and January 2023,” explained Carl Watchorn, head of mortgages at First Direct. “This will be due to people opting to borrow against cheaper properties, or waiting to save up a larger deposit in order to reduce the amount they borrow.”

Watchorn added that the rise in average lending suggests that the market is stabilising.