Buying a home is around £200,000 cheaper than renting over an adult lifetime.
That’s the conclusion of an analysis by Barclays Bank which looks at the cost of a mortgage and maintaining a home compared to the cost of renting. The calculation specifically excludes any real increase in the value of a property and so the ‘saving’ is not based on extravagant assumptions about rising property prices. You can see the press release here.
In Scotland, the bank estimates that buying, repaying the mortgage and maintaining an average property valued at £149,000 over an adult lifetime (50 years) would be £216,000 cheaper than renting (at £8,000 a year or so). Property values, the costs associated with maintaining a house and the cost of rent are all assumed to rise in line with inflation. If house prices outpace inflation, the benefit to the owner compared to the renter would be even greater.
Over a fifty year span, roughly 50 per cent of the cost of occupying your own home comes in the form of mortgage payments. Two fifths of that is the cost of interest, while the rest is capital repayment. The next largest outlay is maintenance at £170,000 followed by the initial purchase deposit.
Initially, renting can look cheaper. The financial hurdles of finding a deposit, Stamp Duty and other buying fees have to be overcome. But once they are, the comparable costs start to even out. And at the end of 25 years, once the mortgage has been repaid, the buyer will also own his home outright as the mortgage will have been entirely repaid. This increases the advantage of owning over renting to £595,000.
The bank launched the research to publicise its new Family Affordability Plan which allows parents to help their children get on or move up the property ladder by using both their income and the income of the child to calculate the size of the mortgage.
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”.