THE average cost of buying a home is increasingly cheaper than renting as mortgage rates fall and rental costs rocket, new research shows.
The typical monthly cost of renting out the average three-bedroom property north of the Border is now 6 per cent higher than the cost of buying it, amounting to £400 more a year, according to analysis out today from Bank of Scotland.
It comes as the consumer watchdog calls for new laws to govern letting agents following a large rise in complaints.
Increased demand for private rented accommodation has been driven largely by slow housing market activity and high deposit demands for first-time buyers. The result has been a surge in rental prices, particularly in Scotland’s cities, which has tipped the balance in favour of buying when monthly costs are compared.
The typical monthly outlay associated with buying the average three-bedroom property in Scotland has fallen to £524, Bank of Scotland claims. The average rent for the equivalent home is now £34 a month higher at £558, £408 a year more.Just four years ago average buying costs were 49 per cent higher than the average monthly rent. The turnaround since then reflects a 38 per cent fall in buying costs, due to lower house prices and reduced mortgage rates, yet home sales are half the level prior to the financial crisis.
Nitesh Patel, housing economist at Bank of Scotland, said: “Concerns over job security and raising a deposit are the main obstacles to people buying their own home. However, it is worth noting that once homebuyers are on the first rung of the ladder, their monthly costs are notably lower.”
Those obstacles mean lower ownership costs are largely irrelevant to would-be buyers currently renting, said Robin Purdie, director of MOV8 Financial in Edinburgh.
“It remains the case that a deposit – generally 10 per cent minimum (plus fees) – is required to purchase a property, so the figures are only relevant to those who can raise a deposit. They are completely academic to those who can’t raise a deposit, or those who don’t meet lending criteria for other reasons.”
While Purdie is optimistic about the housing market, he warned that the research should not be taken at face value.
“The figures only apply to those purchasing a property at the ‘average’ price on an ‘average’ rate over an ‘average’ term,” he said. “Given the overuse of the word ‘average’ I’m not reading too much into these stats.”
Increased demand for rental properties has sparked renewed interest in property investment over the past 12 months. Buy-to-let lending reached its highest level for four years in 2012, according to figures released by the Council of Mortgage Lenders this week.
However, the rapid rise of the rental market is creating its own problems, with growing concerns over the treatment of tenants and landlords by letting agents.
Poor service, excessive fees and “surprise” charges were among the issues identified by an Office of Fair Trading probe into letting agents. The consumer watchdog, which analysed almost 4,000 complaints about letting agents by both tenants and landlords, called for more laws to protect consumers in the market.
It wants clearer information about charges, a better redress mechanism to tackle disputes between landlords and letting agents and a UK-wide strategy for dealing with firms not complying with the laws.