New research shows owning your own home saves you £200,000 over renting during your lifetime.
According to a new study from Barclays, buying, paying and maintaining a home costs £429,000 over 50 years compared to paying an average of £623,000 in rent.
Stepping onto the property ladder, therefore, could have enormous financial benefits over a person’s adult lifetime, especially as the figures from Barclays don’t even account for the value of the home the buyer will own at the end of it.
Initially, being a tenant is often cheaper than being an owner, as mortgage repayments tend to be higher than rental costs, but rents inflate over time. The home buyer also has one-off financial hurdles to overcome, of deposit, stamp duty and solicitor’s fees as well as permanent costs such as maintenance and insurance for his or her home.
But, at the end of a 25-year mortgage period, the buyer will own his home outright, increasing the advantage of owning over renting to £595,000.
Over a 50-year span, roughly 50% of the cost of occupying your own home comes in the form of mortgage payments – £210,000 out of £429,000. Two fifths of that £210,000 is interest cost, while the rest is capital repayment. The next largest outlay is maintenance at £170,000. The initial purchase deposit is the next biggest cost, while insurance, stamp duty and other costs associated with buying the house in the first place make up the rest.
Figures vary enormously from region to region, due to the differences in rents and house prices across the country. For example, in London, buying a typical home would save the owner £396,000 compared to renting it over 50 years. This is chiefly because house prices in the capital are high. In the South West, by contrast, the advantage is very small (just £34,000) because rents are unusually cheap relative to house prices. The North West has relatively low house prices (the second lowest in the country), but rather high rents and so the advantage of owning over renting there is the second highest in the country at £300,000.
But getting on the housing ladder, wherever you live, is still a substantial barrier to many. So, how do you make the step from renting to buying?
Well one way is to look at a new mortgage scheme, just created by Barclays, called Helpful Start. It lets parents help their children with their loan affordability.
The Family Affordability Plan allows parents to help their children get on or move up the property ladder without them having to appear on the property deeds. Both the parents and their child’s incomes are used to calculate the amount they can borrow under the new scheme.
Andy Gray, Head of Mortgages at Barclays said: “The cost of stepping on or moving up the housing ladder can be a big barrier for many, but the long term benefits hugely exceed the initial expense. Not only will you save money by becoming an owner occupier, but you will also own a substantial asset once your mortgage is paid off, providing financial security for your old age. Those who choose to rent permanently will have to pay their landlord out of their pension income, while owner-occupiers will enjoy minimal housing costs.
“Many parents have already realised the return from buying their homes and want to give their children this important step towards independence, but they cannot afford to provide them with the deposit to buy their first home or trade up. Barclays’ Family Affordability Plan allows parent and child to pool resources and secure a larger loan, thereby helping generate much greater wealth and security for the child stepping on or up the property ladder.”