According to the latest Rightmove House Price Index, mortgage payments are only slightly higher than rental prices, making it no longer significantly cheaper to rent.
For the first time, the Rightmove’s House Price Index includes data about analysis of first-time buyer affordability. And their research shows that it is now no longer cheaper to rent than it is to buy.
While rising interest rates have pushed up average monthly mortgage payments to £901, average monthly rental payments are only marginally below with £887. This clearly indicates that the time when renting was much cheaper than buying is over.
Why Is It No Longer Cheaper To Rent?
While Rightmove points out that the gap between rental and mortgage payments has been narrowing for the last ten years, the moment has been reached when it is no longer significantly cheaper to rent.
Based on a household having a 90% loan-to-value mortgage at the average two-year fixed rate for a typical first-time-buyer house of a maximum of two bedrooms, monthly mortgage payments have increased by 13% since December last year.
However, this is only an increase of 11% from ten years ago. On the other hand, monthly rental payments have risen by 40% in the last ten years. Which explains, why renting is now no longer notably cheaper than buying a home.
While low mortgage rates have kept monthly mortgage payments down, despite the rise in house prices over the last ten years, rental prices have risen at a staggering rate. Currently, rents are rising at the fastest pace since Rightmove’s records have began.
First-Time Buyers Need 112% Higher Deposit Than Ten Years Ago
However, this does not mean that first-time buyers find it easy to fund their first home.
The property’s portal analysis shows, that an individual wanting to buy a home with a national average full-time salary, looking to borrow 4.5 times their income, they would now need a 34% deposit, which comes to a staggering £74,402.
Ten years ago, the same person would have only needed a 25% deposit.
This means, a person wanting to buy their first home today needs a 112% higher deposit than ten years ago.
As the data shows, the main challenge for first-time buyers are not monthly mortgage payments, which have stayed fairly stable over the last decade, but the deposit.
Two People Buying Are Better Off
The data also shows, that if two people are buying their first home together, both having an average salary, they will be able to afford a first-time buyer home with a 10% deposit.
However, due to the rise in property prices, this 10% deposit has risen by 56% from ten years ago, from £14,269 to £22,312.
This new analysis shows how it has become increasingly difficult for an average first-time buyer to afford a home on their own.
Tim Bannister, Director of Property Science at Rightmove
This poses a challenge for many potential first-time buyers. Rising rents mean that it is no longer much cheaper to rent, but the dream of their own home is marred by the need for a much bigger deposit.
And with the current cost of living crisis, most are unable to save any money, many might even have to dip into savings to keep up the standard of living. And property prices…
House Prices Still Rising
Despite household budgets being squeezed and inflation reaching 9%, property prices have hit a new record for the fourth successive month this year.
An increase this month by 2.1%, puts the annual price growth to 10.2%. The average asking price this month has reached £367,501.
In the past two years, house prices have risen by a huge £55,000. In the two years before the pandemic, prices have only risen by £6,000.
People may be wondering why the housing market is seemingly running in the opposite direction to the wider economy at the moment. What the data is showing us right now is that those who have the ability to do so are prioritising their home and moving, and the imbalance between supply and demand is supporting rising prices.
Tim Bannister, Director of Property Science at Rightmove
While the number of active buyers is down by 14% compared to last year, it is still 31% higher than at the same time in 2019. At the same time, the number of available properties is 55% lower than it was in 2019.
So for the moment, this imbalance in demand and supply is still driving up the prices. But there are signs that the market is beginning to slow down.
Rightmove’s data shows that the average property stock per agent is rising. From 40 properties this January, which was the lowest point this year, up to 44 properties. While it has not yet reached the 56 properties agents had on their books in April last year, the trend is upwards.
Once there are more houses available to buy, the prices rises will start to slow down and some expert say, even fall in the next two years.
However, for many first-time buyers, who find that it is no longer cheaper to rent, but are unable to find the money for a deposit, this might not be soon enough.
