It is now cheaper to buy a home in Scotland than to rent, according to a new study.
Average monthly mortgage payments for a three-bedroom house in Scotland was £510 in December 2011, 6% lower than the average monthly rent of £540 paid on the same property type.
This is a "significant" reversal of the situation three years ago when the average cost of buying was 47% higher than the average rent paid.
Bank of Scotland, which carried out the research, said that the cost of buying a home has fallen by more than a quarter (£330) since 2008. It said this has been driven by a 37% (£250) decline in the average monthly mortgage payment due to the marked fall in mortgage rates and house prices. However the number of buyers entering the market has continued to decline despite the improvement in the affordability of buying compared with renting since 2008, the research found.
Nitesh Patel, housing economist at Bank of Scotland, said: "The affordability gains for buyers in Scotland relative to renters in the last three years have been significant, albeit less than the improvement in buyer affordability across the UK. The average mortgage payment has fallen over recent years as a result of falling house prices and mortgage rates.
"Nonetheless, despite the improvement in the relative affordability of buying a home, the number of purchasers has continued to fall due to the ongoing challenges in raising a deposit and the considerable uncertainty over the prospects for the economy, which have severely constrained housing demand."
The mortgage rate for a new borrower has been reduced to an average of 3.63% in 2011 from 5.75% in 2008, while the average house price has dropped by 17% over the same period, the study found. The current cost of buying in Scotland, at £510 per month, is 15% lower than the UK average of £600. Buying is currently most affordable relative to renting in London with the average borrower in the capital paying 10.2% less per month than the typical private tenant. Bank of Scotland estimates that there were around 43,000 home purchases with a mortgage in Scotland in 2011. This is the lowest annual total since 1974 and 10% lower than in 2010.
The bank said that much of this decline can be attributed to the increase in the size of the deposit required, with the size of the average deposit put down having risen significantly over the past decade. It said that higher costs related to moving home such as stamp duty and estate agent fees have also added to the overall cost of home buying.
Dr John Boyle, head of research at property agency Rettie & Co, said: "The cost of renting has not risen that dramatically. This change reflects the fact that the cost of buying a house has fallen significantly in recent years due to the modest fall in prices, but, largely, due to the fall in mortgage rates. Only 20% of income, on average, in Scotland is now spent on mortgage payments, well down on the long-term average of 30%.
"The main issue with house buying now is not affordability, but the difficulty in accessing mortgage finance due to the drying up of lending and the size of deposit required to participate in the market. This leaves renting, despite rising costs, as the most viable option for many. However, so far, rental supply is keeping up with demand and this is preventing rents from rising significantly."
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