Owning a home is again much cheaper than renting, as falling mortgage rates widen the difference

The monthly costs of owning a home are again much cheaper than renting, because the lower mortgage interest rates further tip the balance in favor of first-time buyers.

Research from property website Zoopla has found that the average monthly mortgage payment for a typical starter home is now 17 percent cheaper than the average rental price, although buyers may of course need to put down a significant deposit.

This time last year the difference was 2 percent, because mortgage interest rates were higher.

A year ago, average mortgage repayments for a typical starter home with a 20 per cent deposit over 30 years were £1,085 a year ago, compared to £1,110 for a comparable rental property.

Rental costs have risen by 5 per cent to £1,170 per month, while lower mortgage rates have reduced average mortgage repayments by 10 per cent to £972.

The result is that first-time buyers are causing a wave of sales in the property market, according to Zoopla.

It says home sales are at their highest level since the 2020 Covid property boom The sales pipeline was 25 percent higher than a year ago.

It is estimated that there are currently 306,000 homes with a sale agreed in principle, 62,000 more 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.

“The real estate market has been extremely active this year and we currently have 17 percent more homes for sale than in 2020,” Thompson said.

‘Pent-up demand, improved mortgage deals and people’s desire to find a home before the autumn budget have been key drivers for house hunters to complete their searches.’

According to Zoopla, lower mortgage rates combined with rising incomes could be the cause of the spike in the number of people buying and selling.

Many first-time buyers put their plans on hold in 2023 as interest rates rose and rumors of house price crashes filled the airways.

However, with house prices rising and many now able to get mortgage rates between 4 and 4.5 percent, many are deciding to take the plunge this year.

New buyers could make up a third of sales by 2024

Zoopla says first-time buyers are on track to be the largest buyer group by 2024, accounting for 36 percent of all sales.

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

The number of starters on the housing market is supported by landlords who sell homes, because the average asking price of these homes is usually lower.

As many as 12 percent of homes currently for sale were previously rented, with an above-average concentration of sales by landlords in London, according to Zoopla.

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

While this may be good news for buyers, landlords who sell can drive up rents as it creates scarcity – and this hits lower-income tenants the hardest.

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

‘In some areas, volume has grown by more than 50 percent, but on average annual growth is around 30 percent, largely due to lower interest rates, which have led to a resurgence in first-time buyers.

‘In addition, many sellers who had switched to rental properties during the period of higher interest rates are now re-entering the market, often mortgage-free or with significant deposits.’

‘Buy to let activity has declined significantly as smaller or casual landlords exit the market, driven by less favorable financial conditions and increasing regulation.

‘As a result, a large part of the new housing stock now consists of former rental properties.’

House prices remain largely flat

Although the number of sales is increasing explosively, the same cannot be said for house prices.

According to Zoopla, house prices rose by just 1 percent in the 12 months to September 2024, compared to a decline of 0.9 percent a year ago.

Zoopla says house prices are being kept in check by a wide choice of homes for sale, while purchasing power is being kept in check by pressures on affordability.

A North-South divide persists when it comes to house prices.

In areas with affordable house prices, house prices are rising above average.

For example, in the North East and Yorkshire & Humber, prices have risen by 2 per cent in the past year. In the North West they have risen by 2.43 per cent, in Scotland by 2.4 per cent and in Northern Ireland house prices have risen by 5.6 per cent.

However, house prices are showing small declines in East Anglia and South East England, where prices have fallen by 0.3 percent and 0.1 percent respectively over the past twelve months. The South West of England has seen no change from last year.

In terms of cities. Belfast is the best performing location with house prices increasing by 5.5 percent.

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

Looking ahead, Zoopla expects mortgage rates to remain close to current levels, with most people borrowing at rates between 4 and 4.5 percent in 2025.

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

According to the report, house prices are on track for a modest price increase of 2 percent in 2024.