To buy or not to buy? Are people now better to buy rather than rent?

To buy or not to buy? Are people now better to buy rather than rent?

One of the most important changes we've seen in the UK property market over the past couple of years has been the move towards what has often been called generation rent. 

Increasingly, young people in particular are looking to rent rather than buy, not just because they can't afford their own home, but also because it offers them the freedom to move easily and the chance to not be tied down to one place. It has meant that the proportion of people who own their own properties has fallen from more than 70 per cent to around 60 per cent. 

However, as it has become more popular to rent a home, has it actually become cheaper to buy a house or flat than to rent one? According to new research published by the Halifax, this is the case, with owners able to save considerable amounts by buying. 

It said that first-time buyers in the UK are now generally nine per cent better off than their tenant counterparts per year. They can save, on average, £742 per year by paying a mortgage compared to paying rent. 

This is based on the average three-bedroom house in the UK. The mean monthly cost based on mortgage repayments at the moment for this property type stands at £658. This is markedly lower than the £720 monthly rent payable on the same type of home. 

Although the gap is smaller now than it was a year ago, it's likely that it could rise in the year ahead. In 2014, the average monthly cost for buying a first timer house rose by some 12 per cent, or £46. This is compared to a £28 rise in the average cost of renting over the same period. 

However, rents are expected to accelerate far faster than the cost of homes, so it's likely that by the end of 2015, it will be even more expensive to rent rather than buy. 

Craig McKinlay, Halifax mortgage director, 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."

There are, of course, also barriers that exist when it comes to buying a home that can actually make it more affordable to rent in the short term. While a buyer will need to raise a deposit, as mentioned above, of around ten per cent as a down payment before they can get themselves onto the housing ladder, the average tenant will only need to put down six weeks worth of rent as a security deposit. 

Looking forward, it is also likely that it might become more unaffordable to buy in the year ahead. The ever improving economic situation in the UK has led the Bank of England to consider raising the base interest rate from its historic low for the first time in over half a decade. 

Should this happen as expected in October, then it is likely that mortgages will become far less affordable than they are at the moment. If the cost of monthly repayments rises considerably as a result of higher interest rates, then it may end up being the case that it's actually cheaper to rent rather than buy a home.