According to research conducted by Barclays, those who rent over a lifetime will spend almost £200,000 more than those who buy property.
Barclays calculated that the cost of buying, meeting monthly mortgage payments and maintaining an average UK home valued at around £160,000 will come to £429,000 over 50 years. In comparison, the average tenant would typically pay £623,000 in rent for a similar property over the same time period.
However, it should be noted that Barclays researchers claim the figure is a conservative estimate that doesn’t take high inflation (above 2%), moves up the property ladder or resale value into account. Nor does it factor in the obstacles faced by those attempting to get on the property ladder for the first time, such as raising a deposit, paying stamp duty and conveyancing fees.
Andy Gray, head of mortgages at Barclays, commented: “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.
Mr Gray also pointed out that those who rent over a lifetime face the problem of having to continue to pay a landlord when they retire out of their pension income, whilst home owners would enjoy significantly lower housing costs.
Barclays’ research comes at the same time as news reports of the crisis in the Eurozone affecting the UK mortgage market. Whilst what Mr Gray says makes sense, the banks will have to ease their lending criteria for first time buyers and those on low incomes to encourage them to swap renting for home ownership. Banks have responded to the Eurozone crisis by decreasing the number of loans to those with smaller deposits, increasing their rates and passing the costs on to consumers. Unless the banks become more flexible and accommodating, many young people could well be locked into a lifetime of renting.
So, is the future murky? Apparently not, according to Richard Sexton, business development director at e.surv: “It’s certainly not all doom and gloom. Lending levels can’t fall much lower than they already have. But the growth prospects for the mortgage market are tied inextricably to events in the Eurozone. Lending won’t recover with any conviction until the turmoil eases. The fortunes of the mortgage market over the coming months will be closely linked to decisions made in Brussels, Athens and Berlin.”
Sources: Guardian online, Barclays, Property Wire.