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Buying a home with a mortgage could be cheaper than renting in some major British cities, even for people with low deposits, according to analysis from a leading bank.
analysis by lloyds compared typical monthly rental costs with potential first-time buyer mortgage payments in 11 major cities and found that in nine of them, owning a home could be less expensive than current rental rates.
However, the study is based on specific assumptions, including that the buyer will have a 5 per cent deposit and will pay a fixed 4.78 per cent interest rate for five years, with a repayment period of 30 years. Individual financial circumstances will also naturally vary.
To calculate this, lloyds used National Statistical Office ,ons) Data for first-time buyer average property prices and average rental figures.
While the research looked at potential mortgage payments, it did not include legal fees or other ongoing costs associated with home ownership.
London were excluded from the analysis due to significantly higher property prices and differing affordability dynamics, lloyds Said.
The research found that the typical 5 per cent deposit required for a first-time buyer could be around £11,412, based on the average property price of £228,233.
in major cities outside LondonStudy finds biggest gap between ownership and rental glasgowMortgage payments are about 32 percent cheaper than renting.
According to Lloyds calculations, home buyers could potentially save £396 per month, or £4,752 per year, compared to renting.
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It says the average price of a first-time buyer’s property is £172,000, but for some people a deposit of just £8,600 could be enough to get on the ladder.
Newcastle was ranked second for savings, with first-time buyers paying an average of 20 per cent less for a mortgage than for rent – resulting in a potential monthly saving of £217, or £2,604 per year.
With the average price of a first-time buyer’s property at £180,000, a £9,000 deposit could be enough for some people to get on the property ladder.
The report suggests that even in cities such as Cardiff and Sheffield, where rents were slightly cheaper in the short term in the Lloyds study, the long-term benefits of building equity in property could outweigh the difference.
Amanda Bryden, head of mortgages at Lloyds, said: “We know that saving for a deposit is one of the biggest hurdles for first-time buyers.
“Rents have increased rapidly over the past two years, with many people already managing monthly payments that are higher than a typical mortgage.
“This is why low deposit mortgages could be the perfect solution for many – helping people move from renting to ownership as quickly as possible.
“It is also important to consider other upfront costs such as legal fees and relocation expenses – but for most, the long-term savings will outweigh these.”
Although it may be cheaper to buy than to rent in some circumstances, some people may prefer to rent for reasons such as greater flexibility and being able to move around for work.
Ms Bryden said: “The impact of increasing equity in your own home – money that would otherwise be lost to rent – means a more secure financial future.
“For anyone thinking about buying, speaking to a mortgage adviser or broker is a great first step.”
Lloyd’s analysis of 11 major cities
Here are the average first-time buyer home prices, as calculated by Lloyds, followed by the typical amount required for a 5 per cent deposit, monthly mortgage cost, monthly rent, percentage savings from having a mortgage instead of renting, monthly savings and annual savings:
- glasgow£172,000, £8,600, £855, £1,251, 31.7%, £396, £4,752
- Newcastle, £180,000, £9,000, £895, £1,112, 19.5%, £217, £2,604
- Edinburgh, £243,000, £12,150, £1,208, £1,392, 13.2%, £184, £2,208
- Bristol, £311,000, £15,550, £1,547, £1,778, 13.0%, £231, £2,772
- Manchester, £234,000, £11,700, £1,164, £1,317, 11.6%, £153, £1,836
- Nottingham, £183,000, £9,150, £910, £996, 8.6%, £86, £1,032
- Leeds, £209,000, £10,450, £1,039, £1,098, 5.4%, £59, £708
- Liverpool, £167,000, £8,350, £830, £864, 3.9%, £34, £408
- Birmingham, £208,000, £10,400, £1,034, £1,068, 3.2%, £34, £408
- Cardiff, £231,000, £11,550, £1,149, £1,138, minus 1.0%, minus £11, minus £132
- Sheffield, £190,000, £9,500, £945, £893, minus 5.8%, minus £52, minus £624
Where minus figures are shown, renting was found to be less expensive than mortgage payments.