FALLING house prices mean it is cheaper to buy a home than rent a property, a new report has found.

Economists at the Bank of Scotland (BoS) say someone who purchases a three-bedroom house in Scotland would be more than £400 a year better off than those who rent a similar home.

Buying has become more affordable than renting during the past 12 months as house prices dropped while the cost of borrowing also decreased thanks to low interest rates.

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However, raising the deposit needed to secure finance remains the biggest stumbling block to owning a home. More than half of those who took part in the BoS survey highlighted concerns about job security and the challenges in raising sufficient upfront funds.

Nitesh Patel, housing economist at Bank of Scotland, said: "In the past few years, the sharp decline in home-buying costs, combined with an increase in rents, has greatly improved the financial attractiveness of buying a home. This shift has contributed to the increase in the number of house purchases in Scotland in 2012. Despite this pick-up, home-buying levels are still only half the level at the height of the boom.

"Concerns over job security and raising a deposit are the main obstacles to people buying their own home. However, it is worth noting that once homebuyers are on the first rung of the ladder their monthly costs are notably lower."

The BoS half-yearly Buying vs Renting Review found the cost of buying a home in Scotland is 6% lower than renting, with the average monthly mortgage costing £524 – £34 lower than the typical monthly rent of £558 for the same property type.

The gap between the cost of buying and renting has widened by £19 a month during the past year, and purchasing a house is more affordable than renting in all areas of the UK.

At the same time, the average monthly cost of renting has risen by £22 over the past two years, from £536 in December 2010 to £558 in December 2012.

The report also found the number of homes being sold increased in Scotland during the past 12 months by 4%. However, this remains 50% lower than during at the height of the property boom in 2007.

Ross Wilson, of Clyde Properties, said: "This is an example of the market continuing to improve, and it's long overdue new for home owners and people with a mortgages.

"We welcome any good news in terms of the property market and our own figures show things are getting better. But the rental market remains strong because people are still finding it difficult to take the plunge and find a deposit for a property."

Michael Luck, managing director of Slater Hogg and Howison, said the figures showed property remains a good investment, but added that getting on the ladder remains difficult.

He added: "The cost of buying compared to renting depends on the rate you can borrow, and for many young people that will be higher depending on the size of deposit they can find.

"It is still a great time to buy, however, as prices may be at their lowest point and we are confident there will be green shoots of recovery in the market this year."