A combination of low interest rates and a depressed housing market means that the cost of renting is now greater than that of buying a property. Logically there is no better time to buy the property you live in but there must be help for first time buyers if they are to achieve that.
Research carried out by Halifax showed that a first-time buyer will pay their mortgage lender around £567 a month for a two-bedroom flat, which is over £100 less than they would be paying a landlord for a similar property.
It is evidence that, at least on the surface, economic conditions are favouring first-time buyers, and the report concluded that the cost of getting on the property ladder has fallen by 40% from its 2008 peak when the cost of repaying a mortgage was more than £200 a month costlier than renting an equivalent property.
The 0.5% base interest rate set by the Bank of England’s Monetary Committee has helped bring mortgage rates down, with the average for first-time buyers currently around 3.8%, over 2% less than in 2008. While the fall in house prices has been far less dramatic – much to the relief of those who bought their homes at the height of the market – the Halifax figures show a typical first property has fallen by 14% to just under £125,000.
Further assistance has been given by the government’s increase in the Stamp Duty threshold*, reducing the tax burden of buying a home. With first-time buyers not having to pay Stamp Duty on properties under £250,000, Halifax estimate that only 5% have to pay it at all.
But as most buyers looking to get on the ladder will tell you the garden is far from rosy at the moment, and help for first time buyers is required. The caveat to Halifax’ figures is that the cost of a deposit is not factored into their calculation. With mortgage lenders still very conservative in their lending habits, the down payment most require is at an all-time high. The average for first-time buyers is over £27,000.
With that in mind the news that renting is now less affordable will, in practise, work against many prospective first-time buyers, increasing the need for help for first time buyers. As they need to save increasing amounts to satisfy the lender, the last thing they need is more money leaving their account as a result of needing to rent longer than they desire.
* The 2012 Budget did away with this assistance