Owning a home is once again much cheaper than renting, as falling mortgage rates widen gap

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The monthly cost of owning a home is once again much cheaper than renting, as lower mortgage rates tip the balance further in favour of first-time buyers.

Research by the property website Zoopla found that the average monthly mortgage cost for a typical first-time buyer home is now 17 per cent cheaper than the average rent – though of course buyers may need to save a substantial deposit. 

This time last year, the difference was 2 per cent as mortgage rates were higher.

Busy market: Rising incomes and the lowest mortgage rates for two years are supporting the highest level of new sales agreed since autumn 2020

A year ago, the average mortgage repayments for a typical first-time buyer home with a 20 per cent deposit on a 30-year term were £1,085 a year ago, versus £1,110 for a similar rental property.

The cost of renting has risen by 5 per cent to £1,170 a month, while lower mortgage rates have reduced the average mortgage repayments by 10 per cent to £972 .

The result is that first-time buyers are driving a sales boom across the property market, according to Zoopla. 

It says house sales are running at the highest level since the 2020 Covid property boom, with the pipeline of sales agreed 25 per cent higher than a year ago.

It estimates there are currently 306,000 homes with a sale agreed in principle, which is 62,000 higher than a year ago.

Matt Thompson, head of sales at Chestertons estate agents says Zoopla’s findings reflect the reality on the ground at the moment.

 Pent-up demand, improved mortgage deals and people’s desire to find a property ahead of the Budget have been key motivators

‘The property market has been extremely active this year and we currently have 17 per cent more properties under offer than in 2020,’ said Thompson.

‘Pent-up demand, improved mortgage deals and people’s desire to find a property ahead of the Autumn Budget have been key motivators for house hunters to finalise their search.’

Lower mortgage rates combined with rising incomes are thought to be behind the spike in people buying and selling, according to Zoopla.

Many first-time buyers put their plans on hold in 2023 when rates spiked and talk of house price crashes filled the airways.

However, with house prices nudging higher and many now able to secure a mortgage rate between 4 per cent and 4.5 per cent now, many are deciding to take the plunge this year.

Get a move on: The number of property sales agreed in the four weeks to 20 Oct was 25% higher than the same time the previous year, according to Zoopla

First-time buyers could make up third of 2024 sales 

Zoopla says first-time buyers are on track to be the biggest buyer cohort in 2024, accounting for 36 per cent of all sales.

This is followed by existing homeowners (31 per cent), cash buyers (27 per cent) and landlords buying with a mortgage (7 per cent). 

First-time buyer numbers are supported by landlords selling homes, as the average asking price of these homes tends to be lower. 

As many as 12 per cent of homes listed for sale at the moment were previously rented, with an above-average concentration of landlord sales taking place in London, according to Zoopla.

The average asking price of a formerly rented home is £307,000, which is 16 per cent lower than the average UK asking price of £365,000. 

On the ladder: First-time buyers with mortgages are set to make up 36% of all buyers this year

While it might be good news for buyers, landlords selling up can push rents higher because it creates scarcity – and this hits lower-income renters the hardest.

Chris McLaughlin, director at Bristol-based Ocean Estate Agents said: ‘The housing market is experiencing significant variation across districts and price bands. 

‘In some areas volume has grown by over 50 per cent but on average year-on-year growth has reached approximately 30 per cent, largely driven by lower interest rates, which have spurred a resurgence of first-time buyers. 

‘Furthermore, many sellers, who had transitioned to rental accommodation during the period of higher interest rates, are now re-entering the market, often mortgage-free or with substantial deposits.’

‘Buy-to-let activity has notably declined as smaller or accidental landlords exit the market, influenced by less favourable financial conditions and increasing regulation. 

‘Consequently, much of the new housing stock now comprises former rental properties.’

House prices remain broadly flat

While the number of sales is booming, the same can’t be said for house prices.

House prices rose by just 1 per cent over the 12 months to September 2024, according to Zoopla, compared to dropping by 0.9 per cent a year ago. 

Zoopla says house prices are being held in check by a large choice of homes for sale, while buying power is being kept in check by affordability pressures.

There continues to be a North-South divide when it comes to house prices. 

Home values are rising at an above-average rate in areas with more affordable house prices.

For example, in the North East and Yorkshire & Humber, prices are up 2 per cent over the last year. In the North West they are up 2.43 per cent, Scotland is up 2.4 per cent and Northern Ireland’s house prices are up 5.6 per cent. 

However, house prices are posting small falls in East Anglia and South East England, where prices are down 0.3 per cent and 0.1 per cent respectively over the past 12 months. The South West of England has seen no change compared to last year.

In terms of cities. Belfast is the best-performing location with house prices rising 5.5 per cent.

Manchester has seen average prices rise 2.8 per cent, while Glasgow and Liverpool have seen home values rise 2.4 per cent. 

Looking ahead, Zoopla is expecting mortgage rates to remain close to current levels with most people borrowing at rates between 4 per cent  and 4.5 per cent over 2025. 

This means wage growth will have to do the hard work supporting affordability and buying power, with house price growth likely to remain modest. 

It says house prices are on track for a modest 2 per cent price increase in 2024. 

How to find a new mortgage

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people’s borrowing ability and buying power.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage