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

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.

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.

‘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.

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. 

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.