Buying still beats renting

Falling house prices and rising rents mean that first-time buyers are better off entering the property market than continuing to rent long term, according to new research.

Abbey has calculated that those who rent over 25 years lose on average £10,500 compared with those who buy a home. In the south east of England, the loss could amount to £60,000.

But with many nervous buyers unwilling to commit to a purchase, an area of the property market witnessing some of the most interest is buy-to-let investment.

Strong demand from tenants has whetted investor appetite for rental property, in spite of falling house values. According to the most recent Council for Mortgage Lenders analysis, buy-to-let loans have increased steadily over the past two years and now account for more than 10 per cent of the total mortgage market.

Not all locations in the UK provide the same opportunities for homebuyers, however. In Northern Ireland, specifically Belfast, estate agents estimate that buyers would lose out over the long term.

The figures are based on individuals paying off a 90 per cent loan-to-value repayment mortgage over 25 years at a rate of 6.64 per cent. Those able to secure greater levels of equity and a cheaper deal could save even more money.

There are, however, a raft of deals at higher rates. Just this week, two-year fixed mortgage rates topped 7 per cent. Anyone on a rate that exceeds 6.64 per cent will feel less of a benefit from buying their own home.

The rent vs buy index from Abbey also does not take into account stamp duty or legal fees. However, it does include maintenance costs and mortgage fees.

The gap between the cost benefits of buying a home over renting narrowed in 2007 as rental costs decreased. But as house prices fell and rents increased, this trend has reversed.

For renting to become a more cost-efficient option than buying a house, Abbey calculated that house prices would need to rise by 2.5 per cent, with all other factors remaining the same.

So Abbey said it expects the differential to become wider in favour of buying a house as house prices continue to fall.

In spite of these facts, demand from tenants for rental accommodation is on the up. Analysts attribute this in part to tighter lending criteria, which has made mortgages harder to obtain for those people seeking to enter the housing market.

This week, Woolwich's First Start deal, the last mainstream offer of a 100 per cent mortgage, was removed from the market. First-time buyers now require a larger deposit in order to obtain a mortgage and many are concerned that the effects of falling house prices and rising mortgage rates could result in negative equity.

MoneyExpert.com says tenants are in a better position to ride out the financial pressures of rising household bills than homeowners. "They don't have to remortgage, won't suffer equity losses and their expenditure on basic commodities is lower too," said director Sean Gardner.

Mortgage brokers also admitted that buy-to-let investors face the same problems as first-time buyers: higher rates and tighter lending restrictions.

For anyone considering entering the market, one of the best rates currently available is 6.29 per cent from Chelsea Building Society, which requires a 30 per cent deposit. In June, Bradford & Bingley (LSE: BB.L - news) , the UK's biggest buy-to-let lender, withdrew its entire range of fixed and variable buy-to-let loans.

According to Louise Cuming, head of mortgages at money-supermarket.com, the number of products available to buy-to-let investors with a deposit of less than 15 per cent has dropped from 259 in June last year tojust 12.

Mortgage lending slumps a fifth in May

LONDON (ShareCast) - Tougher lending criteria, higher food costs, rising fuel prices and soaring utility bills caused a slump in mortgage lending last month to its lowest level since records began more than a decade ago.

New mortgage approvals sank to less than 28,000 in May from 34,752 the month before, according to the British Bankers' Association (BBA).

That's a 20% slump on the month and a 56% plunge on the same time a year ago. The figures also revealed that net mortgage lending dropped to £4bn during the month from £5.2bn in April.

"Measures of mortgage activity were lower in May as a result of tighter lending criteria and economic pressures on households," said BBA statistics director, David Dooks.

"Only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders."

The number of homeowners remortgaging fell just 8% from April's 68,971 and 10% weaker than a year ago.

"People spent more on credit cards, but repayment levels were lower than expected in May and after April's busy month with people putting money into ISAs, personal deposits were not as strong," said Dooks.

Buying A Home In 2013?

The Halifax reports that house prices are likely to remain flat in 2013.

The mortgage lender says outlook for the housing market is 'more unclear than usual'. It reported a 1% monthly rise in November but a year-on-year fall of 1.3%. This is in opposition to a Nationwide report which stated that house prices remained the same year on year, January to January, with a 0.5% rise in January 2013 but preceeded by falls in 11 or the 13 regions. They also report a widening gap in the north/south property price divide.

Halifax report that the south-east and London is the most likely region to experience house price growth in 2013.

A major part of the problem is that first-time buyers continue to struggle to secure mortgage loans and that ever rising energy bills and stagnant wage growth will continue to restrict the number of homebuyers.