New research, from mortgage giant Santander, reveals that in some areas of the UK it could be cheaper for prospective first time buyers to continue to rent, rather than buy a home.
The research suggests that first time buyers in in London, the South East and perhaps surprisingly, Scotland, will find it cheaper to continue renting compared to buying a home. First time buyers in the capital face an average monthly mortgage outlay of £1,342 compared to an average monthly rent of £864.
The research has confirmed fears that first time buyers will continue to be priced out of the London housing market, despite Government initiatives such as the Funding for Lending and the Help to Buy schemes, designed to help them onto the housing ladder.
In the other two areas, where mortgage payments were higher than rents for first time buyers, namely Scotland and the South East, the differences were less marked at £84 and £56.
First time buyers need larger deposits
At the same time as the Santander research was released, figures from the Council of Mortgage Lenders (CML) show first time buyers still have to find large deposits. But in the capital at least, this doesn’t seem to be causing a problem for many first time buyers.
The CML data shows that whilst the average deposit needed by first time buyers in London is £64,000, it isn’t deterring people from stepping onto the housing ladder in the capital, where the number of first timers has risen to the highest level since 2007.
Savings recorded outside London
However, for first time buyers living outside of London, the South East or Scotland, it is potentially cheaper to buy than it is to rent, providing a large enough deposit can be found.
The Santander research shows if a first time buyer can produce a 20% deposit, perhaps from their own savings or as a gift or loan from parents, then based on an average monthly rent of £480 and mortgage payments of £335, a saving of £1,740 per year could be made.
Although finding a large enough deposit is often a hurdle, property in the UK, excluding London and the South East, is remarkably more affordable for first time buyers. With an average purchase price of approximately £85,000, the 20% deposit, which is often necessary, is far more affordable than the £64,000 needed in London.
Phil Cliff, of Santander UK, said: “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.” (Source:The Telegraph)
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