Why it's cheaper to buy than to rent

Christina Jordon explains why now is the right time for first-time buyers to get on the property ladder

It's hard being a potential first-time buyer. For years they have been desperately saving deposits as house prices spiralled out of reach.

Then the minute they get a break with falling house prices, the mortgage market freezes and that 5% deposit they were aiming for has now doubled to a minimum of 10% to even get a sniff of a deal.

While prices have dropped substantially, they haven't dropped by enough to make the figures stack up for many beleaguered first-time buyers.

And now to make things worse they've started rising again. According to Nationwide average house prices have gone up by more than 5% in the first nine months of this year* and are now back to September 2008 levels. It also noted that all regions in the UK saw price rises in the third quarter of this year.

Great news, but not if you want to buy your first property, in which case rising property prices are exactly what you don't need at a time when it's hard enough to get your funding in order.

However, if you are lucky enough to have a decent deposit of 25% and therefore have a greater choice of mortgages, now could well be the perfect time to buy before prices rise any further (of course there are NO guarantees that this will happen).

And according to Abbey it's now actually cheaper to buy than it is to rent everywhere in the country, except the capital.

Time is ripe

According to the lender, potential first-time buyers, with a 25% deposit, would be better off buying a property than continuing to rent - and could save an average of £624 over the next year by taking the plunge.

The average monthly rent (not including London) comes to £434, while those buying a property would currently see a monthly mortgage bill of £382 - an average saving of £52 per month.

In the capital, expensive house prices make renting a more affordable option. Those looking to buy in London now would be a massive £466 worse off a month compared to renting.

In Wales prospective buyers are the best off each month, saving £90 by buying rather than renting, followed by those in the North West who save £87. Below is a breakdown of what you can save by buying a property across the country instead of paying off your landlord's mortgage:

Source: Abbey

What about the mortgage?

It might be cheaper to buy than rent for most of us, but the Abbey research is based on those who have a 25% deposit. And most first-time buyers don't have that much, do they?

Well, surprisingly the average first-time buyer deposit is now 25% and they are only borrowing three times income, according to the Council of Mortgage Lenders.

However, we have to be careful with these figures. After all, many 'wannabe' first-time buyers are frozen out of the market and so their data and their deposit size is not included in the statistics - it's too low to enable them to get a loan!

The reason that most first-time buyers have a 25% deposit is because they need one to be able to get a decent mortgage deal. In other words, it's a select band of lucky people who make up first-time buyers in 2009. Indeed, according to website findaproperty.com, 55% of first-time buyers currently get some kind of financial help from their families.

But plenty don't get such help and the best they can hope for is to save the minimum 10% required to access a deal. Even then there is no guarantee as lenders are currently very strict on the amount they will lend in relation to your income -- and if you've had a brush with bad credit you can forget it.

At this extreme end of the mortgage market, where borrowers need 90% of the property's value, deals are neither competitive, nor plentiful.

Tough at the top

First-time buyers were dealt a blow this week when Britannia Building Society reduced its maximum loan to value ratio to 85% from 90%. It has been a strong player in the high loan-to-value sector this year and its withdrawal limits borrowers' choices further.

However it's not all bad news. Earlier this month HSBC announced it was making a further £500m available to 90% loan-to-value mortgage lending, on top of the £1bn it has already lent to this sector in 2009. It has a competitive range of products for first-time buyers at 'best buy' rates.

There are mortgages available if you have 10% upfront -- but you will pay a significant premium over borrowers with a 25% deposit. This has always been the way but the difference is more pronounced in the current climate.

Below are 10 of the best first-time buyer deals. Most are available up to 90% loan-to-value, with a couple up to 85% for those who can scrape together 15% to put down.

Top 10 first-time buyer mortgages

*According to Nationwide's non-seasonally adjusted index

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