Buying a house is cheaper than renting one.
Figures from Santander show that rent is, on average, £3,468 more than mortgage payments, per year.
It sounds like good news, and it is; for those who have already saved a deposit and are into an established routine, at least.
What has happened to the cost of housing?
Historically, buying has been the most expensive option, especially in London, where house prices are notoriously high. But, in recent years the playing field has started to level out, and in many places, the tables have turned altogether.
As recently as May 2017, renting a home was cheaper month-to-month than buying in 54% of locations (Source: Zoopla). However, the average monthly mortgage repayment has gradually fallen over the past decade, from an average of 48% of a homeowner’s income in 2007, to 29% in early 2018 (Source: Halifax)
What the figures mean
The average mortgage payment is lower than the average rent in all regions. The gap between the two is the smallest in the East of England, but still shows mortgage holders to be paying less each month, even if it is by just £43.
However, looking at those figures in isolation ignores the other costs facing first-time buyers, both up-front and ongoing.
Miguel Sard, Managing Director of Mortgages at Santander UK explains: “Many first-time buyers understandably focus on the challenge of saving for a deposit and wonder how they will afford a property. However, it is often assumed that when you purchase a property you will be under greater financial pressure and our research shows the reverse is true.
“Of course, buying a property is a major financial investment with upfront costs to consider, but long term the financial benefits can be significant. With annual savings averaging well over £2,000, this can really mount up over time and of course once the mortgage is paid off you have a valuable asset to show for it. Getting independent advice and looking for competitive rates, is crucial to get the right mortgage to meet potential homeowners individual needs.”
Playing the long game
Before reaching a point where your housing costs are lower than that of someone renting a home, you will need to consider both the up-front and ongoing costs which come with buying a home. These will include:
- Insurance
- Ground rent
- Maintenance costs
- Saving a deposit
- Stamp Duty
- Paying specialists throughout the process, such as solicitors, surveyors and agents
Overcoming the first hurdle
Usually, the biggest cost facing first-time buyers is the deposit. Saving for a deposit is arguably the biggest and most financially challenging part of buying a home. In the UK, the average first-time buyer deposit was £33,339, an overall increase of £15,599 over 10 years, according to Halifax.
That’s not an amount which is easy to find for most people, so, if you want to get to a situation where you are paying less each month and own your home, it will take hard work and lots of cash up front.
How do you get there?
1. Saving for a deposit
There are many ways to make saving for a deposit easier. The first option is to open a Lifetime ISA (Individual Savings Account). You can deposit up to £4,000 per year into a Lifetime ISA, and withdrawals made to pay a deposit on your first home will not incur penalty fees. These are available for anybody aged 18-39 and you can continue making deposits until you turn 50.
Each year, the government adds a bonus equal to 25% of the amount deposited during the previous tax year. That’s up to £1,000 of free money every year!
If you need extra help, consider asking your parents or grandparents for help. If it’s not possible for them to put money toward your deposit out of the blue, consider asking for contributions to your deposit fund instead of birthday or holiday presents.
2. Taking advantage of the opportunities
There are a range of options available to help you to get onto the property ladder as a first-time buyer, including:
- Help to buy equity loans
- Shared ownership
- Low-deposit mortgages
We’ve talked at length about these options previously, so if you think one of them might be right for you, please see our previous post.
3. Building your credit score
Your credit score and report will be a key factor in your ability to access credit including a mortgage, and the more impressive your credit score is, the more likely you are to be offered a better interest rate. That means lower monthly repayments and less expenses in the long-run.
You can improve your credit score, and maintain it, by:
- Joining the electoral register
- Checking your credit report regularly and reporting any mistakes
- Updating your information as soon as it changes
- Staying on top of your credit and making repayments on time
4. Seeking advice
Engaging with a professional can help to make sure that you have a rounded view of your situation and the options facing you. Contact us for in-depth information and advice about the types of mortgages available to help you to get onto the property ladder, as well as the steps you can take to make your own journey easier.
For more information, get in touch with us on 0207 808 4120.