FIRST-TIME BUYERS ALMOST 10% BETTER OFF BUYING THAN RENTING

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1 NOT FOR BROADCAST OR PUBLICATION BEFORE HRS ON SATURDAY 14 FEBRUARY 2015 FIRST-TIME BUYERS ALMOST 10% BETTER OFF BUYING THAN RENTING The Halifax Buying vs. Renting Review tracks the costs of buying and renting a three bedroom property faced by a typical first time buyer (FTB) across the UK. Average buying costs include mortgage payments, income lost by funding a deposit rather than saving, spending on household maintenance and repair and insurance costs. They do not include one-off costs, such as stamp duty, valuation and legal fees. The review is based on data from the Halifax's own extensive housing statistics database, BM Solutions, the Bank of England, and the Office for National Statistics (ONS). Annual savings of 742 for those getting on the housing ladder First-time buyers in the UK are 742 (9%) a year better off with their own home compared to those who rent, according to research by Halifax. The average monthly buying cost (including mortgage payments 1 ) associated with a first-time buyer buying a three bedroom house stood at in December 2014; 62 (or 9%) lower than the typical monthly rent of paid on the same property type. With the price of a typical first-time buyer home rising by 8% in 2014, the difference has narrowed from 80 (12%) to 62 since 2013 as the average monthly buying costs grew by 46 while average monthly rents increased by 28 (see Table 1). However, at the same time, the number of first-time buyers increased by an estimated 22% in 2014, with 326,500 first-time buyers getting on the ladder the highest annual total since 2007 (359,900). Buying more affordable than renting in all regions In 2014, first-time buyers in London have, in cash terms, experienced the largest benefit from buying rather than renting a home. The average monthly cost of 1,275 for those who have bought compares to an average monthly rental price of 1,387; a saving of 112 a month ( 1,338 over the year) or 8%. The second largest difference is found in the North West where first-time buyers were paying 17% less a month ( 109 a month or 1,304 annually) than the typical private tenant in the region (see Table 2). The smallest differences between the monthly cost of buying and renting are in the East Midlands ( 6 or 1%) and the South East ( 15 or 2%). Clare Mortimer: / claremortimer@halifax.co.uk 1

2 Gap between cost of buying and renting still substantially higher than in 2009 Five years ago the average monthly cost of buying was 15 higher than the typical rent paid ( 576 versus 561). Since 2009 the substantial improvement in the affordability of buying relative to renting largely reflects a 28% ( 159) rise in average monthly rental costs over the past five years. This increase was twice as fast as the 14% (or 83) rise in average monthly buying costs. Lloyds Banking Group s Helping Britain Prosper Plan includes a pledge to support one in four firsttime buyers and one in four new build purchases. In 2014 around 80,000 first time buyers were helped onto the housing ladder by Lloyds Banking Group brands. Craig McKinlay, Mortgage Director, Halifax said: "Average home buying costs are significantly lower than average rental costs, providing first-time buyers with a large financial saving if they can get on the housing ladder. While the timescales associated with raising a sufficient deposit to buy a home present a hurdle to many potential first-time buyers, the significant difference in costs between buying and renting, combined with still low mortgage rates, increased consumer confidence and the Help to Buy scheme, have all been factors driving the substantial rise in first-time buyers over the past two years. A healthy mortgage market is key to a thriving economy. It is for this reason that helping more customers get on the housing ladder is a key commitment within the Group's Helping Britain Prosper Plan, and Halifax is committed to playing a key role in delivering upon that Plan." ENDS Clare Mortimer: / claremortimer@halifax.co.uk 2

3 Table 1: UK first time buyer average monthly buying costs and rental payments Year Average monthly buying costs Average monthly rental payment % difference difference Annual Savings Dec % Dec % Dec % Dec % Dec % Dec % Sources: Halifax, BM Solutions and ONS. 12 months to December Rental payments are a crude, or simple, average. Table 2: First time buyer average monthly buying and rental costs by region, December 2014 Region Average monthly buying costs Average monthly rental costs % difference difference Annual Savings North % North West % ,304 Yorkshire & the Humber % West Midlands % East Midlands % East Anglia % South East % Greater London 1,275 1,387-8% ,338 South West % Scotland % Wales % Northern Ireland % UK % Sources: Halifax, BM Solutions and ONS. Period covered is 12 months to December Clare Mortimer: / claremortimer@halifax.co.uk 3

4 Average Monthly Saving by Buying over Renting Across the UK SCOTLAND 65 (11%) NORTHERN IRELAND 28 (7%) NORTH 35 (7%) YORKSHIRE & THE HUMBER 19 (4%) NORTH WEST 109 (17%) WEST MIDLANDS 30 (5%) EAST MIDLANDS 6 (1%) WALES 42 (8%) EAST ANGLIA 37 (5%) SOUTH WEST 54 (7%) SOUTH EAST 15 (2%) LONDON 112 (8%) UK Average monthly saving by buying 62 (9%) SOURCE: Halifax, February 2015 Clare Mortimer: / claremortimer@halifax.co.uk 4

5 Editor s notes: In previous Reviews the UK rental figures were a weighted average of the regional rental data for new loans, where weights were calculated using regional housing tenure data from the Communities and Local Government (CLG). However, as regional tenure data is no longer published the methodology in this review has been changed to using simple averages. The new methodology has been applied across all years in Table 1. 1 Mortgage payments: Mortgage payments are the weighted average of repayment (capital and interest) and interest-only mortgage payments. They refer to the average first-time buyers with average advance data from the Council of Mortgage Lenders. Weights have been constructed using FCA regulated mortgage statistics on advances by mortgage type. Average mortgage payments (both repayment and interest-only) have been calculated using house price data from the Halifax's own extensive housing statistics database and Bank of England series on the average of UK resident banks' sterling weighted average interest rate loans secured on dwellings to households for new borrowers only. Mortgage payments refer to the average for a three bedroom house over 12 months to December for each year. Halifax research shows that three bedroom homes are the most popular property types for first time buyers getting on the housing ladder. 2 Average buying costs: Average buying costs include mortgage payments (weighted average of repayment and interest-only mortgage payments), household maintenance, repair, minor alterations and insurance costs and income lost by funding a deposit rather than saving. Mortgage payments are calculated from average advances made to first time buyers for each region and year published by the Council of Mortgage Lenders. The average advance for 2014 varies from 76% in London to 85% in the northern regions; the UK average is 83%. Figures relate to the first year of purchase. In previous Buying versus Renting Reviews a uniform 90% average advance had been taken for all regions and years; in this review the methodology has been changed to take published market figures for all regions and years. As a consequence of using lower average advances, average buying costs are now lower than in previous years. The new methodology has been applied across all years in Table 1 3 Rental payments: Average rental payments are based on rental data from BM Solutions. Monthly rents (both regions and UK) are crude, or simple, averages based on the buy to let mortgage new transactions. In March 2014, the Group published its Helping Britain Prosper Plan, setting out seven separate and significant public commitments to do even more to help address some of the big issues facing its customers and Britain today. As part of the Plan, the Group has committed to supporting one in four first time buyers by To find out more about Lloyds Banking Group s commitment to Help Britain Prosper, please visit Income lost by funding a deposit rather than saving: It is assumed that there is a cost involved in funding a deposit which for this analysis is the monthly interest income lost from paying a deposit instead of saving it in an interest bearing account. This has been calculated using house price data from the Halifax's housing statistics database and the interest gained from an average of Bank of England quoted savings rates on instant access, notice, ISA and fixed rate bond accounts. For example, the average deposit required to buy a three bed home ( 27,659) in the UK would generate an average monthly income of just over 24. If used to fund a deposit, the income from the interest would be lost and is therefore included as a cost within the average monthly buying costs measure. Based on research by Shelter (January 2015) it could take buyers to save on average 378 per month over six and a half years to raise a deposit for a typical three bedroom first home in the UK. Clare Mortimer: / claremortimer@halifax.co.uk 5

6 Household maintenance, repair, minor alterations and insurance costs: Estimated maintenance repair, minor alterations and insurance costs associated with owning a home have been sourced from the ONS Family Spending Survey for Estimates for 2009, 2010, 2011, 2012 and 2014 have been calculated using the 2013 survey data and adjusted using the CPI series on regular maintenance and repair of dwellings. Housing Economics Helpline No: housingeconomics@lloydsbanking.com "This report is prepared from information that we believe is collated with care, however, it is only intended to highlight issues and it is not intended to be comprehensive. We reserve the right to vary our methodology and to edit or discontinue/withdraw this, or any other report. Any use of this report for an individual's own or third party commercial purposes is done entirely at the risk of the person making such use and solely the responsibility of the person or persons making such reliance. " Bank of Scotland plc all rights reserved Clare Mortimer: / claremortimer@halifax.co.uk 6