Buying still beats
renting
Falling house prices and
rising rents mean that first-time
buyers are better off entering
the property market than
continuing to rent long
term, according to new research.
Abbey has calculated that
those who rent over 25 years
lose on average £10,500
compared with those who
buy a home. In the south
east of England, the loss
could amount to £60,000.
But with many nervous buyers
unwilling to commit to a
purchase, an area of the
property market witnessing
some of the most interest
is buy-to-let investment.
Strong demand from tenants
has whetted investor appetite
for rental property, in
spite of falling house values.
According to the most recent
Council for Mortgage Lenders
analysis, buy-to-let loans
have increased steadily
over the past two years
and now account for more
than 10 per cent of the
total mortgage market.
Not all locations in the
UK provide the same opportunities
for homebuyers, however.
In Northern Ireland, specifically
Belfast, estate agents estimate
that buyers would lose out
over the long term.
The figures are based on
individuals paying off a
90 per cent loan-to-value
repayment mortgage over
25 years at a rate of 6.64
per cent. Those able to
secure greater levels of
equity and a cheaper deal
could save even more money.
There are, however, a raft
of deals at higher rates.
Just this week, two-year
fixed mortgage rates topped
7 per cent. Anyone on a
rate that exceeds 6.64 per
cent will feel less of a
benefit from buying their
own home.
The rent vs buy index from
Abbey also does not take
into account stamp duty
or legal fees. However,
it does include maintenance
costs and mortgage fees.
The gap between the cost
benefits of buying a home
over renting narrowed in
2007 as rental costs decreased.
But as house prices fell
and rents increased, this
trend has reversed.
For renting to become a
more cost-efficient option
than buying a house, Abbey
calculated that house prices
would need to rise by 2.5
per cent, with all other
factors remaining the same.
So Abbey said it expects
the differential to become
wider in favour of buying
a house as house prices
continue to fall.
In spite of these facts,
demand from tenants for
rental accommodation is
on the up. Analysts attribute
this in part to tighter
lending criteria, which
has made mortgages harder
to obtain for those people
seeking to enter the housing
market.
This week, Woolwich's First
Start deal, the last mainstream
offer of a 100 per cent
mortgage, was removed from
the market. First-time buyers
now require a larger deposit
in order to obtain a mortgage
and many are concerned that
the effects of falling house
prices and rising mortgage
rates could result in negative
equity.
MoneyExpert.com says tenants
are in a better position
to ride out the financial
pressures of rising household
bills than homeowners. "They
don't have to remortgage,
won't suffer equity losses
and their expenditure on
basic commodities is lower
too," said director
Sean Gardner.
Mortgage brokers also admitted
that buy-to-let investors
face the same problems as
first-time buyers: higher
rates and tighter lending
restrictions.
For anyone considering
entering the market, one
of the best rates currently
available is 6.29 per cent
from Chelsea Building Society,
which requires a 30 per
cent deposit. In June, Bradford
& Bingley (LSE: BB.L
- news) , the UK's biggest
buy-to-let lender, withdrew
its entire range of fixed
and variable buy-to-let
loans.
According to Louise Cuming,
head of mortgages at money-supermarket.com,
the number of products available
to buy-to-let investors
with a deposit of less than
15 per cent has dropped
from 259 in June last year
tojust 12.
