Halifax: cheaper to rent first-time buyer houses than own them in ‘most parts’ of UK

Prospective first-time buyers could be better off paying rent, new Halifax housing market research has suggested.

According to the lender, across most UK nations and regions the average monthly cost of renting a first-time buyer home is cheaper than what a homeowner would pay each month in an equivalent property.

The difference was especially stark in the East of England, where renters were an average of £2,325 better off each year. However, owning a first home worked out as being cheaper in the South West, London and Scotland.

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It comes as mortgage rates remain significantly higher than they were pre-Covid. For much of the past two years, rampant inflation has eaten into first-time buyer deposits, whilst also pushing up interest rates to what is now a 16-year high.

This situation has eaten into house prices, with the latest Office for National Statistics (ONS) House Price Index finding first-time buyer homes were 1% cheaper on average in January 2024 than they were a year previously. However, renting has also become much pricier. A lack of housing stock has sent rents soaring, although there are signs that the increases may have hit a ceiling.

Separate ONS data, released on Monday (25 March) showed full-time workers in England could expect to spend 8.3-times their annual earnings to buy a home. The equivalent figure for Wales was 6.1. The research also found that affordability had improved in 75% of local authority areas.

Halifax: renting and home ownership in ‘smallest gap’ since 2019

Halifax’s research has measured the average monthly cost of renting and home ownership in a typical first-time buyer home. The data period covers 2023, and has been broken down into UK nations and regions.

Overall, the data showed that rent cost an average of £27 a month (£319 a year) more than a mortgage, at £1,258 compared to £1,231. This was the smallest numerical difference between the two since 2019, when first-time homeowners were £28 a month (4%) better off.

In most years over the past decade, the percentage difference in costs has been in double-digits, with homeowners typically saving more than £1,000 a year compared to if they had been renting. But the margin has narrowed over the past 10 years, with home-owning costs leaping 27% and renting going up 24% in price.

This has tipped over into renting being cheaper than buying on average in nine out of the 12 nations and regions covered by Halifax’s research. While the South West (+10%/£139), Scotland (+4%/£35), and Greater London (+1%/£12) all saw renting costs come in as more expensive than mortgages, it was a different story elsewhere.

The biggest percentage differences were recorded in Yorkshire and the Humber (-18%/-£144), the East Midlands (-15%/-£145), and the East of England (-14%/-£194), with the East of England leading the way in numerical terms.

Despite the findings, Kim Kinnaird, mortgages director at Halifax, said people would still be better off in the longer-term if they purchased a property rather than rented it. She said: “We know home ownership can offer long term financial and living stability and that's why we believe it’s an important step to take.

“Our customers want to create a secure future, so it's a big priority for us to help people get there. However, elevated borrowing costs, alongside a lack of available homes to buy, is pushing ownership further out of reach for would-be first-time buyers in many parts of the country.”

Reacting to the findings, Tom Bill, who is head of UK residential research at estate agency Knight Frank, said he believed the situation had come down to a lack of trading volume in the housing market.

“The story of the last two years has been a slowdown in transactions, not prices, which has made renting a cheaper option in some areas,” he said. “Given that housing will be one of the issues taking centre stage at the election, it would be surprising if the government failed to offer any help to first-time buyers."

Average house price deposits ‘on the rise’

Halifax’s research also looked at the average deposit needed to purchase a typical first-time buyer home across the UK. It found that it had risen by a percentage point (roughly £1,500) between 2022 and 2023 to 24% of the overall price of the property.

Deposits soared the most in real-terms in Northern Ireland, rising more than £4,600 from £33,304 to £37,926, or 23% of the cost of a typical home. Away from London, where an average deposit of £191k (34%) was needed to secure a three-bed home that would be considered to be a first-time buyer property elsewhere in the country, the East of England, South East and South West had the highest deposit percentages.

First-time buyers needed to stump up 26% of the property price across all three areas. The highest numerical average was found in the South East, where a deposit of £97,981 was needed to get a house.

Scotland and Wales required the lowest deposits on a proportional basis, with 19% enough to secure a first house. In both nations, buyers needed more than £38,000 on average to secure a deal.