It is now more expensive to buy a house than to rent in almost every region of Britain, a study into first-time buyers and mortgage affordability has found.
In September 2021, it was cheaper to buy a house in all regions of Britain, with mortgage repayments on average lower than rent.
But despite rising rental costs in recent years, rising mortgage rates have helped reverse the trend.
According to the Intermediary Mortgage Lenders Association (IMLA), the only areas in Britain where buying is still the cheaper route are the North West, Scotland and Northern Ireland.
IMLA published these findings as part of a report, The paradox of mortgage affordability. It calculated mortgage interest costs versus the average rental price in each region based on the purchase of an average-priced starter home with a 95% loan-to-value (LTV) mortgage.
Additional costs faced by buyers, such as building insurance or repairs and maintenance, were not taken into account.
Benefits of buying a house
Despite what IMLA has seen as a ‘dramatic turnaround’ in the comparison of renting and buying costs, there are still incentives for people to buy a home.
These calculations were based on someone taking out a 95% LTV mortgage, and those with higher deposits will have access to lower rates.
Furthermore, although the report said monthly expenses for new starters would likely be higher than for renters, buyers could be locking themselves into a fixed rate mortgage and guarantee a fixed amount. However, tenants are faced with the prospect of rent increases.
IMLA said that, assuming house prices do not rise over the next 30 years, someone buying an average house, initially with a 25-year LTV repayment mortgage, could be £352,000 better off than someone who continues to rent privately.
The mortgage interest rate would have to be higher than 11.5% over the life of the loan before renting would be as financially beneficial as buying.
Declining numbers of starters
But the number of new buyers is still declining. According to IMLA, the numbers have fallen sharply from 405,000 in 2021 to 257,000 last year.
IMLA also estimates that the cumulative shortfall in the number of new buyers since the financial crisis was 3.1 million at the end of 2023.
Despite strong affordability during the ultra-low interest rate years from 2013 to 2022, new buyer numbers failed to reach the levels that previous trends had suggested.
It has attributed the strict regulations introduced after the financial crisis as one of the reasons for these falling figures. This includes rules limiting lending at or above 4.5 times income, as well as the need for higher deposits.
Of interest rates rise Moreover, the challenges for market starters have increased.
Kate Davies, Executive Director of IMLA, said: “Home ownership brings a range of invaluable benefits to individuals and their families, not only in terms of the accumulated wealth it provides, but also in the peace of mind provided by the security of a proof of ownership. It can also benefit wider society and help build established communities.
She added: “IMLA believes the government can help future start-ups by exploring the legal barriers to ownership. We believe that it would be beneficial to consumers if the government were to establish a regulatory framework that explicitly recognizes the interests of future first-time buyers, with affordability rules reassessed accordingly.
“Particular attention should be paid to the FPC’s LTI flow limit, under which lenders are limited to offering no more than 15% of their mortgages at or above 4.5 times income, as this appears at odds with the rest of the affordability regime.”