The big householder question answered
It’s perhaps one of the great first-world questions of our time. Not, will I need a visa to go to France next year, nor, will my adult kids ever leave home, nor, why are avocados so expensive these days, but: How much cheaper is it to pay off a mortgage than rent for 30 years?
Perhaps the answer is now upon us – it is £352,500 - according to research from the Intermediary Mortgage Lender’s Association.
This sum, says the trade association, is made up of the average monthly householder’s outgoings being £133,700 lower over the period of time added to an additional £218,000 of equity gained from the mortgage being paid off.
Importantly, the calculations do not include house price inflation.
Now we know, if we didn’t already, that owning your own home can be a much better way of living your adult life, even if the barriers to entry at times seen unattainable.
Like our gallant ladies in the recent World Athletics Championships – home ownership for the younger generation can seem a very high bar to jump over.
However, the report questions the perceived wisdom that rising house prices is the main reason for declining home ownership.
Kate Davies, executive director of the IMLA says: “The overlay of stricter affordability criteria introduced into the mortgage rules has added to the problems faced by potential buyers trying to get on the ladder.
People who have been renting privately and comfortably making their monthly payments are struggling to obtain a mortgage with the same or even lower monthly payments, while the reduction of interest-only as a route to managing affordability has cut the number of options for first-time buyers.”
The IMLA’s report, The Intergenerational Divide in the housing and mortgage markets, has found that private renters might expect to pay out £451,600 over the next 30 years, taking into account a projected increase of 2 per cent in rent per year. Meanwhile, a homeowner on a 25 year repayment mortgage, rather than 30, could pay £317,900 if interest rates remain at current levels.
It also reveals 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. Obviously if the value of the home you bought falls, it won’t turn out so well.
So in a world of inclusion, like our golden athletes, a key sector of society is being excluded.
The IMLA wants government to undertake an independent cost-benefit analysis of the current regulatory regime to assess if current regulations could be contributing to potential consumer detriment by excluding some consumers from homeownership.
I suspect they may not be alone. And given the Family Building Society’s own researches with the London School of Economics into the detrimental affect of the Stamp Duty regime, it can be hoped a new government, if indeed there is one, will listen to this growing sector of discontent.
We think so.
Written by Steve McDowell
The content of this blog is Steve McDowell’s personal opinion and comment, and views expressed here are his and unless specifically stated, are not those of Family Building Society. The content on this page is not intended to be advice in any circumstances.