Key findings from Lloyds Bank research:
- Average UK savings: £2,700/year when buying vs renting
- Top city for savings: Glasgow (£4,752 annually)
- Average 5% deposit needed: £11,412
- Monthly mortgage payments 17% cheaper than rent
Buying a home can seem a very difficult proposition, particularly if you are a first-time buyer without the experience of the seasoned homebuyer. Part of the problem - quite a significant one - is in finding the funds to support your plans, whether it's finding the money for a deposit or budgeting for the monthly mortgage repayments, as well as all the costs associated with moving and the subsequent household budget to contend with.
And then there is the decision as to where you are going to buy your home. For many, the local ties to friends and families, the needs of the job and settling the kids into chosen schools means that they are not necessarily as free to completely change their planned location to another part of the country.
There is also the belief that the cost of renting a place and the ability to move on to the next rental property is much better than is the case for those wanting to buy their home.
Surprising research shows buying beats renting in most UK cities
But an interesting analysis of the market carried out by Lloyds Bank shows that there are places around the country where the cost of buying a home is cheaper than renting. The assessment looked at 11 cities, comparing average monthly rental costs with typical first-time buyer mortgage repayments.
The most surprising - and encouraging - finding is that, on average, for first-time buyers in Britain, the mortgage payments are typically 17% cheaper than the cost of renting each month. And this is underlined by including low mortgage deposits that go down as far as 5% of the asking price - the cost of the mortgage repayments each month is derived from the level of risk the lender is willing to accept; the higher the deposit, the lower the risk and (usually) the better the terms that come with lending the money.
Lloyds notes that the average 5% deposit sits at £11,412, which is based on a typical first-time buyer property price of £228,233. Of course, those figures will be affected by the location with the South and South-east of England usually being significantly higher when compared with most other parts of the country. This is shown by the fact that Glasgow has the biggest gap between borrowing and renting, where Lloyds estimates homebuyers could save at least £4,750 a year.
The beauty of buying a home rather than renting is that, with the housing market currently being generally buoyant, as prices rise, so does the equity within the home. Lloyds found that Bristol was the best place to build up the accrued equity, adding almost £25,000 over a period of just five years.
Only two of the 11 cities - Sheffield and Cardiff - revealed a slightly better rental market than would be the case for buying your first property.
City-by-city breakdown: First-time buyer savings
City | Average FTB Price | 5% Deposit | Monthly Mortgage | Monthly Rent | Annual Savings |
Glasgow | £172,000 | £8,600 | £855 | £1,251 | £4,752 |
Newcastle | £180,000 | £9,000 | £895 | £1,112 | £2,604 |
Edinburgh | £243,000 | £12,150 | £1,208 | £1,392 | £2,208 |
Bristol | £311,000 | £15,550 | £1,547 | £1,778 | £2,772 |
Manchester | £234,000 | £11,700 | £1,164 | £1,317 | £1,836 |
Nottingham | £183,000 | £9,150 | £910 | £996 | £1,032 |
Leeds | £209,000 | £10,450 | £1,039 | £1,098 | £708 |
Liverpool | £167,000 | £8,350 | £830 | £864 | £408 |
Birmingham | £208,000 | £10,400 | £1,034 | £1,068 | £408 |
Cardiff | £231,000 | £11,550 | £1,149 | £1,138 | -£132 |
Sheffield | £190,000 | £9,500 | £945 | £893 | -£624 |
GB Average | £228,233 | £11,412 | £1,135 | £1,360 | £2,700 |
Source: Lloyds Bank
What this table shows is that, when you are planning on buying your first property, and if you are able to relocate to one of the areas where buying is a far better financial proposition, it pays to do a bit of researching.
As Amanda Bryden, Head of Mortgages at Lloyds, said of the results:
"We know that saving for a deposit is one of the biggest hurdles for first-time buyers. With rents having risen sharply over the last two years, many are already managing monthly payments that are higher than a typical mortgage. That's why low-deposit mortgages could be the right solution for many - helping people move from renting to owning sooner than they thought possible. It's also important to consider other upfront costs like legal fees and moving expenses - but for most, the long-term savings will outweigh these."
Buying a home helps to build financial stability and offers more security. Including in those lower-placed of Cardiff and Sheffield, even though the monthly rental bill is slightly more favourable, opting to buy instead will give the longer-term benefits of security and the accruing equity.
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