With UK house prices continuing to rise, another type of North/South divide is emerging, with new research from Santander Mortgages finding that the vast majority of potential first-time buyers would still be better off buying a property than continuing to rent, except in three key areas; London, the South East and Scotland.
According to the bank’s research, for the majority of the country other than London, average monthly rental prices now exceed those for the average mortgage repayment. The South East and Scotland, however, are the exception from the rest of the UK with average monthly mortgage payments slightly more than average monthly rent at £56 and £84 per month, respectively.
Would-be buyers currently renting outside of London, South East and Scotland, could save themselves an average of £1,740 a year if they were able to own their own property, or a £1,224 saving per annum if you include these three areas. The average monthly rent in the UK (excluding London, South East and Scotland) is currently around £480 compared to monthly repayments of £335 for the average first-time buyer – equating to an average saving for homeowners of £145 a month(1). If you include London, South East and Scotland, this figure lowers slightly to an average of £127 saving per month.
With its high property prices, those in the capital will be better off if they continue renting while those in the South East would need to find, on average, an extra £56 a month for their mortgage as opposed to rental payments. Potential homeowners in Scotland would face an average £85 difference between their monthly rent and mortgage payment.
Despite rental prices in London being roughly 80 per cent higher than the average across the UK, at £864 a month, exceptionally high house prices mean it would, on average, cost potential first-time buyers an additional £478 a month to buy.
The research into typical first time buyer flats and terraced properties found the average price across the country, excluding London, South East and Scotland, to be £85,955. This means that a first-time buyer, applying for a 80 per cent loan-to-value mortgage (the average LTV for first-time buyers according to the Council of Mortgage Lenders(2)) would require a deposit of £17,191.
Phil Cliff, Director of Mortgage Marketing at Santander UK said: “With rates at their lowest for some time this research strongly supports the idea that despite a reported increase in prices across the UK housing market, for the majority owning your own home could be far more cost effective than renting. Over the last few years, people have approached the housing market with justifiable caution but with an increase in Government housing support schemes such as ‘Help to Buy’ plus interest rates likely to remain low for the foreseeable future, now could provide the ideal opportunity for many potential homeowners to realise their dream.
“An LTV of 80 per cent for first-time-buyers has now become something of an average, with saving for a deposit the norm as opposed to a couple of years ago. However lenders are now able to offer low rates alongside higher LTV products while the Government’s new Help to Buy scheme is positive news for those wishing to take their first steps on the property ladder, helping make home ownership a reality for many. As one of the UK’s largest lenders we remain committed to the UK housing market, offering an extensive product range, with a choice of features and benefits including free valuation and £250 cashback on completion. Plus, with Santander’s 1|2|3 Current Account customers can also benefit from 1 per cent cashback on their Santander mortgage direct debits.”
Santander has a number of products available to help those looking to purchase a property for the first time including a First Time Buyer exclusive 2 year Fixed rate at 4.49% per cent up to 90 per cent LTV with no fee and a First time Buyer exclusive 5 year Fixed rate 4.99% up to 90 per cent LTV with no fee. Both these products include our Homebuyer Solution: a free valuation and £250 cashback on completion to help reduce upfront costs. Santander also offers two and five year Help to Buy products offering competitive fixed and tracker rates starting from 3.29%, with a minimum deposit of 5% of the purchase price and no booking fees on new build properties. The products, which are 75 per cent LITV, come with the Homebuyer Solution1 as standard.
Phil Cliff continued: “When we first conducted this research in 2010, London was the only UK location where it was cheaper to rent than buy. Now, a demand for housing and rising house prices has seen both the South East and Scotland join its ranks. Although with the average difference between monthly mortgage and rental payments currently still under £85 for both, compared with an average of £478 for London, potential homebuyers in the South East and Scotland should act now if they can, before the difference in rent and mortgage payments increase. With rents at an all time high and house prices on the rise again, low rates and Government initiatives can help those considering getting on the housing ladder to buy rather than rent.”
Prospective buyers in the North West are set to make the biggest savings if they can move from renting to owning a property. Average monthly rental payments in the region for typical first time buyers exceed mortgage payments by almost £268. Those in the North East and the East Midlands would save £164 and £173 respectively were they to buy.
Lower savings are available for those in the South West where typical first-time buyer monthly mortgage payments exceed average rents by around £60.
And it’s still remains cheaper to buy across six areas of the UK with a 10 per cent deposit than rent, with the North East, North West, Yorkshire Humberside, East and West Midlands and Wales all offering opportunities to get on the property ladder with a 90 per cent LTV mortgage.
UK Region
House price
Type
Average rent / month
Average mortgage bill with 10% deposit
Difference between rents and mortgages with 10% deposit
Average mortgage bill with 20% deposit
Difference between rents and mortgages with 20% deposit
North West
£64,854
Terrace
£520.43
£332.77
-187.66
£252.56
-267.87
North East
£64,830
Terrace
£416.00
£332.65
-83.35
£252.47
-163.53
Yorks Humberside
£73,901
Terrace
£465.83
£379.19
-86.64
£287.79
-178.04
Wales
£79,197
Terrace
£433.33
£406.36
-26.97
£308.42
-124.91
East Midlands
£80,771
Terrace
£487.50
£414.44
65.05
£314.55
-172.95
West Midlands
£89,973
Terrace
£467.13
£461.66
-5.47
£350.38
-116.75
East Anglia
£114,021
Flat
£520.00
£585.05
65.05
£444.03
-75.97
Scotland
£117,517
Flat
£373.54
£602.98
229.44
£457.65
£84.11
South West
£120,092
Flat
£528.23
£616.20
87.97
£467.68
-60.55
South East
£163,999
Flat
£582.83
£841.49
258.66
£638.66
55.83
London
£344,539
Flat
£863.63
£1,767.85
904.22
£1341.74
478.11
Notes:
1) Analysis of Land Registry house price data and first time buyers repaying their mortgage at 3.24% over a 25 year term, on a capital and interest repayment mortgage at 80 per cent LTV (the average LTV for first-time buyers according to the Council of Mortgage Lenders)
1) According to data published by the Council of Mortgage Lenders, published 12 August 2013 (http://www.cml.org.uk/cml/media/press/3620)