Buying a home instead of renting could leave the average property owner £352,500 better off over 30 years – even if house prices fail to rise, new research has claimed. The research, from trade body the Intermediary Mortgage Lenders Association, calculated that monthly mortgage repayments on the average £230,000 home could be £133,700 cheaper than paying rent over three decades living there.At the end of that period, buying would also net the homeowner £218,800 in equity from paying off their initial 95 per cent loan-to-value mortgage of that amount.The report sought to highlight the disparity in future prospects for those able to buy a home and those excluded from the housing ladder by high property prices.
Crucially, the mortgage brokers’ huge claimed saving depends on interest rates on home loans remaining at the near rock-bottom level that they are at now. The report found that if that was the case, while private tenants might expect to pay out £451,600 in rent over the next 30 years, whereas a homeowner could pay £317,900 if interest rates remain at current levels.
When adding the accumulation of equity, the average homeowner could be £352,500 better off over the next 30 years than had they rented the average privately rented property – without factoring in any potential increases in house prices. The report factored in rent starting at the current national average given by Homelet of £11,292 a year and rising by 2 per cent annually.For the example of buying a home it also included purchase costs, maintenance and buildings insurance and works on the basis that the buyer starts with a 5 per cent deposit mortgage.
While interest rates are eventually likely to rise from their very low levels now during the next 30 years, the report claimed that mortgage rates would have to be in excess of 11.5 per cent throughout the life of a loan before owning and renting produced equal expected financial returns
Even lenders’ higher standard variable rates only currently sit at 4.89 per cent, according to Compare The Market.
The Intermediary Mortgage Lenders Association’s Kate Davies said: ‘The long-term benefits of being a homeowner are not just confined to the property value and the potential for house prices to increase.’Homeowners also potentially save hundreds of thousands of pounds compared to their private renter counterparts.’