The gap between renting and buying a home is narrowing as a result of rising house prices, interest rates and mortgage charges which are making buying a house less economically viable than renting one in the long run.
According to the annual UK Rent Versus Buy Index from by Abbey Mortgages, buying a house over 25 years will cost an average of £437,925, a saving of £5,811 compared to renting for the same period, which costs £443,736. This is a massive 76 per cent drop compared to just a year ago, when the saving made from buying instead of renting was more than £24,000.
The results vary between one region and another. In the North of England and Eastern Scotland, for example, it is still cheaper to buy than rent; in Northern Ireland, Wales and the North West it is cheaper to rent that to buy, and in London, Yorkshire and the Midlands, there is very little difference in the cost between buying and renting.
Nici Audhlam-Gardiner, Head of Mortgages at Abbey said: “A number of factors have come together to cause rent over 25 years and a mortgage for the same period to converge across the UK. But while on a month-to-month basis in some areas it is cheaper to rent rather than buy, at the end of the 25 years a homeowner actually has a house whereas a renter has nothing. In addition, homeowners benefit from any further house prices rises as the value of their equity increases over time.
“So despite the convergence, we believe that people are still better off owning a property. The people who really struggle however are first-time buyers who find it difficult to get on the property ladder. We think it is the role of mortgage lenders to come up with new initiatives so that more people can achieve their dreams of owning a home.”
The difficulty faced by first time buyers increased recently in the wake of the credit crisis which has seen mortgage providers tighten their lending criteria. GE Money has found that nearly a quarter of mortgage applications are being affected by the crunch.
Some are being refused a loan based on their credit rating, many mortgage ranges are being discontinued by lenders, fees and charges are changing and interest rates have gone up, which are all conspiring to make getting a mortgage more difficult.
Duncan Berry, Sales Director at GE Money Home Lending, commented: “Our latest research shows that not only have 87% of brokers experienced deals that have encountered problems due to lenders withdrawing product ranges or making changes to pipeline dates at short notice, but that a staggering 23% of all mortgage applications have felt a direct impact from the current global credit crunch.”
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