The average homeowner in this country could be £352,500 better off than the average private renter over the next 30 years, even if residential property prices do not increase, new research reveals.
The latest report from the Intermediary Mortgage Lenders Association (IMLA) says that while private renters might expect to pay out £451,600 over the next 30 years, taking into account a projected increase of 2% in rent per year, a homeowner on a 25-year repayment mortgage could pay £317,900 if interest rates remain at current levels.
Over a 30-year period, the average homeowner could expect to save £133,700 when paying a mortgage rather than rent, while also gaining £218,000 of equity from paying the mortgage off.
The report, The Intergenerational Divide in the housing and mortgage markets, finds mortgage rates would have to be in excess of 11.5% throughout the life of a loan before owning and renting produced equal expected financial returns.
Kate Davies, executive director of the IMLA, said: “Becoming a homeowner is a life-changing experience. It can also transform your long-term finances – and this research quantifies the extent of that transformation.
“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.”
Despite the financial benefits of buying a property, there has been a marked decline in homeownership amongst younger people, and yet the research suggests that rising house prices are not the main barrier to first-time buyers.
Rather, it suggests that the sharp tightening of mortgage lending criteria in the wake of the financial crisis prevented many consumers from getting on the ladder while the subsequent increase in regulation has limited options for potential buyers to become homeowners.
IMLA is calling on the government to commission an independent cost-benefit analysis of the current regulatory regime for mortgages to assess whether current regulations could be contributing to potential consumer detriment by excluding some consumers from homeownership.
Davies added: “Whilst this report highlights a stark difference in the long-term financial position of those who buy as against those who rent, it also underlines the importance of a continuing and healthy private sector for those who are renting – whether they need to rent long-term or are saving up to buy their own homes.
“The PRS continues to play a vital role in Britain’s housing market as well and IMLA will continue to champion the need for a vibrant and competitive sector which provides homes for millions of people who need or want to rent. But we do think it is important that the FCA and the Bank of England should acknowledge and take account of the financial situation for those who cannot buy or enter social housing when implementing rules in the mortgage market.”