Are you a prospective first-time buyer? You might have seen the reports in the media lately that renting is currently cheaper than buying a property. And you might be tempted to carry on renting and hold off on buying for a bit longer. What’s caused the situation, and should you still try to buy your first place?

It’s a surprising statistic. According to research by Hamptons, renting is cheaper than buying your first home for the first time in six years. The estate agent says those buying with a ten per cent deposit would be better off renting. There are only four areas in the UK where buying is cheaper than renting for first-time buyers. These are the North East, North West, Yorkshire & Humber and Scotland. Renters are now reportedly £71 a month better off than homeowners according to Hamptons. On average, renters spend £1054 per month, compared to homeowners with 90 per cent mortgages paying £1125.

The impact of the pandemic

In early 2020, it was cheaper to buy instead of renting in every region of the UK. A spokeswoman for Hamptons said the pandemic was to blame, with first-time buyers hit by lenders increasing their rates or withdrawing higher loan-to-value mortgages last year. Many lenders withdrew 90 per cent mortgages when the pandemic first took hold of the UK, and when they did bring them back last autumn, some returned with higher interest rates.

However, if you are wondering whether to buy now or hold off, bear in mind that property prices are currently still rising. If you leave it too long you may have to save for a bigger deposit. In the 12 months to May 2021, house prices rose by 10.9 per cent according to Nationwide. Halifax recently said that the average property price increased by £22,000 in one year.

Completion before September

There’s also some benefit to completing on a property before the end of September, even though the first phase of the stamp duty holiday is set to end on 30 June. If you complete on a purchase between 1 July and 30 September, you won’t pay stamp duty on the first £250,000 of the property. If you complete from 1 October onwards, the stamp duty threshold changes to £125,000, meaning you’ll pay stamp duty from £125,001 upwards.

The market may slow down when the first phase of the stamp duty holiday ends on 30 June but is likely to remain relatively busy as property demand exceeds supply. Prices rose by 0.8 per cent in May according to the Rightmove House Price Index. Rightmove says that high prices and an all-time low of available properties is ‘starting to slow the market’s frenetic pace’. Yet according to Halifax’s House Price Index (based on its mortgage approvals), the average house price in May was £261,743, which represented annual growth of 9.5 per cent.

While no one can predict with any great certainty what will happen with property prices, it also seems that the current situation regarding renting being cheaper may be short-lived. Hamptons said it expects the gap between renting and buying to close at some point this year.

Growing in value

It’s true that you will naturally incur more costs when you buy a property, such as buildings insurance and life cover, but you will be investing in a purchase that will grow in value. Phil Leivesley, MB Associates’ Senior Mortgage Adviser, says: ‘As well as growing in value, your payments will – assuming the mortgage is arranged on a capital and interest basis – reduce the balance of the mortgage over time, providing you with greater equity. When renting, you’re performing the same service for your landlord.’

And it’s not just the financial investment you’re making that counts. Living in your own property rather than someone else’s will give you more freedom and has numerous benefits.

Our Content Manager Christina Neal is about to complete on her property purchase after renting for almost four years. She says: ‘I’ve never felt completely comfortable about the idea of living in someone else’s property as they could change their mind and want their house back, meaning I’d have to move out and find somewhere else. I’ve never liked someone else having that potential control over my living arrangements either.

Rental restrictions

Christina adds: ‘I’m also restricted in what I can do around the house – I can’t decorate, hang pictures properly or carry out any permanent work to improve the property as it’s not mine. I can’t wait to be a homeowner again and know that I won’t have to move anytime soon unless I choose to do so!’

While you may make a short-term saving by renting rather than buying your first place, there are still many good reasons to consider buying. We’re here to help if you need advice on getting a mortgage.

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