Buying cheaper than renting as market turned on its head down
BUYING a home in Scotland is 6 per cent cheaper than renting, according to a new study.
Average monthly mortgage payments for a three-bedroom house in Scotland were £510 in December – £30 lower than the average monthly rent of £540 paid on the same property type.
This was a “significant” reversal of the situation three years ago, when the average cost of buying was nearly half as much again (47 per cent) as the average rent.
The Bank of Scotland, which carried out the research, said the monthly cost of buying a home has fallen by more than a quarter – £330 – since 2008.
It had been driven by a 37 per cent (£250) decline in the average monthly mortgage payment due to the marked fall in mortgage rates and house prices.
Over 2011, buying costs fell by 6 per cent, while renting costs rose by 1 per cent.
However, the number of buyers entering the market has continued to decline. Would-be buyers still face the hurdle of raising a deposit and are likely to face a tougher time securing a mortgage this year, with lenders expected to tighten borrowing criteria because of the weak economy.
Typical rents have been pushed up as those who would like to buy have been left trapped in the rental system and concerns have been raised that transactions could hit a record low this year.
Nitesh Patel, housing economist at the bank, said: “The affordability gains for buyers in Scotland relative to renters in the last three years have been significant, albeit less than the improvement in buyer affordability across the UK.
“The average mortgage payment has fallen over recent years as a result of falling house prices and mortgage rates.
“Nonetheless, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the economy, which have severely constrained housing demand.”
The mortgage rate for a new borrower has been reduced to an average of 3.63 per cent in 2011 from 5.75 per cent in 2008, while the average house price has dropped by 17 per cent over the same period, the study found.
The current cost of buying in Scotland, at £510 per month, is 15 per cent lower than the UK average of £600.
Scotland is currently one of the most cost-effective parts of the UK for buying relative to renting, according to the bank.
Only in London and the north and north-west of England is it more cost effective to buy than rent than in Scotland.
In London, the average borrower pays 10 per cent less a month than the typical private tenant.
The bank estimates that there were around 43,000 home purchases with a mortgage in Scotland in 2011, the lowest annual total since 1974 and 10 per cent lower than in 2010.
The bank said that much of this decline was due to the increase in the size of the average deposit required.
It said that higher costs related to moving home, such as stamp duty and estate agent fees, have also added to the cost of home buying.
Dr John Boyle, head of research at property agency Rettie & Co, said: “The cost of renting has not risen that dramatically.
“This change reflects the fact that the cost of buying a house has fallen significantly in recent years due to the modest fall in prices, but, largely, due to the fall in mortgage rates.”
Across the UK it is only cheaper to rent than buy in Wales, where the average monthly cost of buying is £479 while the average rent is £474.
Young would-be home buyers are turning to the “bank of granny and grandpa” to help them raise a deposit, as the “bank of mum and dad” is also facing a tough time financially, a survey has suggested.
One in ten young adults said they had asked their grandparents for financial help to get their first foot on the property ladder, according to the study from housebuilder Taylor Wimpey.
Parents are also seeing their children live in the family home for longer as they struggle to raise a large deposit.
But many are unable to also help out with extra cash to help them move out, having seen their own finances squeezed by high living costs, deteriorating employment conditions and a lack of real returns on savings, with 65 per cent of parents saying they did not have any spare funds.
Scotland’s housing budget will fall by more than 40 per cent next year as spending cuts bite, official figures have shown.
The news was described as a “hammer blow” for families on waiting lists by leading housing charity Shelter Scotland, while Labour claimed that the SNP government was “kicking” the struggling construction industry while it is down,
Figures from the Scottish Parliament’s Information Centre show a 41 per cent cut from £363.66 million this year to £214.818m in 2012-13.
Housing minister Keith Brown said: “When our capital budget is being cut by a third by the Westminster government, we are making each Scottish Government pound deliver more than before. That is key to supporting construction and families.”
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