Home Ownership is £200,000 cheaper than a lifetime of renting

Graham_Devon

Thought some of you would quite like this article!

They haven't factored in inflation at above 2%, and neither have they factored in mortgage rates as it's all based on todays rate (whatever that is). Can't tell from the article what other figures it's all based on, but anyway, posting it as I know some will like it!

Young people locked out of home ownership will spend nearly £200,000 extra over a lifetime of renting rather than buying a house, according to research.

Barclays' calculations show that the costs of buying, paying the mortgage on and maintaining an average home valued at about £160,000 today will total £429,000 over 50 years. A tenant would typically pay £623,000 in rent for a similar property over that time.

The gap does not count the potential sale value of the purchased property. The high starting hurdles of deposits, stamp duty and legal fees mean many first-time buyers cannot take advantage.

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."

http://www.guardian.co.uk/money/2012/jun/18/home-ownership-cheaper-renting-study

I think Andy Gray is saying "Buy now, we have lots of new money for you!!"

Barclays have also launched a new mortgage scheme today. Worryingly, you can now add your parents income onto yours, to help with the affordability.

For instance, if you earn 25k, and your parents earn 40k combined, you can apply for the mortgage with a 65k income, from which you can then multiply by whatever they allow you.

Barclays are also planning to allow children to tap into parents savings and access lower mortgage rates based on their parents savings pots, obviously they need to hold them with barclays.

So nice advertising piece for barclays is this!

“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." Andy Gray

Scary stuff!

Graham_Devon

Got the figures now. It's based on paying a mortgage for 25 years at 4.4% interest rates and that the buyer / renter never move again.

Bizarely enough, even with those low rates, it only ends up costing you 33k more over a lifetime in the south west?!?

http://www.newsroom.barclays.com/Press-releases/Buying-beats-renting-by-almost-200-000-over-lifetime-8f6.aspx

ukcarper

I would have thought that was rather obvious I have been mortgage free for a couple of years now and therefore have saved about £25k in rent on my current house or about £18k if I rented a smaller property.

If I live another 10 years I will save another £180 to £250k.

purch

Home Ownership is £200,000 cheaper than a lifetime of renting

Not for members of the 70% Club.

Apparently they get a special discount or something :eek:

Itismehonest

Pinch of salt all round on this one.
Yes, renting will work out more expensive than buying when one makes the basic calculations. That's not news & has always been recognised.
Apart from the things you've already listed as not taken into account. Graham. there are others. One of the largest being home-owner costs for maintenance. Across a lifetime these can easily offset the £200,000 difference.
There's also the mobility factor. If your job relocates, you loose your job or just want to change where you live for any reason at all, it is much easier to do so when renting than as an owner - hence the number of owners resorting to letting out their home.

The problem is that people now expect a property to turn a profit. It used to happen but most people actually bought houses as homes with a much longer mortgage. Some never moved out of their first homes & others who did either did so after many more years or didn't expect a profit. On the old repayment mortgage system when the loan & interest were spread over something like 25 years it took several years to even get to the stage that the loan was being paid off.
The problem started when people started seeing property as 'quick turnover & quick profit'.

Generali

purch wrote: »

Not for members of the 70% Club.

Apparently they get a special discount or something :eek:

And a tie IIRC.

Graham_Devon

Itismehonest wrote: »

Pinch of salt all round on this one.
Yes, renting will work out more expensive than buying when one makes the basic calculations. That's not news & has always been recognised.
Apart from the things you've already listed as not taken into account. Graham. there are others. One of the largest being home-owner costs for maintenance. Across a lifetime these can easily offset the £200,000 difference.
There's also the mobility factor. If your job relocates, you loose your job or just want to change where you live for any reason at all, it is much easier to do so when renting than as an owner - hence the number of owners resorting to letting out their home.

The problem is that people now expect a property to turn a profit. It used to happen but most people actually bought houses as homes with a much longer mortgage. Some never moved out of their first homes & others who did either did so after many more years or didn't expect a profit. On the old repayment mortgage system when the loan & interest were spread over something like 25 years it took several years to even get to the stage that the loan was being paid off.
The problem started when people started seeing property as 'quick turnover & quick profit'.

They have allowed £2,000 a year for maintenance of the property.

The obvious flaw in the calculations, is assuming people buy one house and live in it for the rest of their lives. The low interest rate is of course another flaw, but who knows, could see these rates for another 25 years.

For a renter, moving doesn't really cost anything in financial terms, bar the actual moving costs (unless you do it yourself).

For a buyer / seller there will be stamp duty, legal fees etc to take into consideration. I have a figure in my head that the average person moves 6 times in their life. That's a huge cost thats been ignored in favour of the buyer. Enough to make a lifetime renting in the south west financially advantageous.

Still, if it labours the point and barclays can sell some of these intergenerational mortgages, I guess it's worked.

wotsthat

Graham_Devon wrote: »

Bizarely enough, even with those low rates, it only ends up costing you 33k more over a lifetime in the south west?!?

To all of these figures the value of the house at the end of 50 years needs to be added. So at the end of 50 years in the SouthWest the renter is out by £33k + whatever the 2012 £160k house is worth.

These figures shouldn't be a surprise to anyone. Prices 'simply' too high? I think not - buying a house is one of the most surefire ways to improve net worth and ensure a secure retirement.

ukcarper

Graham_Devon wrote: »

They have allowed £2,000 a year for maintenance of the property.

The obvious flaw in the calculations, is assuming people buy one house and live in it for the rest of their lives. The low interest rate is of course another flaw, but who knows, could see these rates for another 25 years.

For a renter, moving doesn't really cost anything in financial terms, bar the actual moving costs (unless you do it yourself).

For a buyer / seller there will be stamp duty, legal fees etc to take into consideration. I have a figure in my head that the average person moves 6 times in their life. That's a huge cost thats been ignored in favour of the buyer. Enough to make a lifetime renting in the south west financially advantageous.

Still, if it labours the point and barclays can sell some of these intergenerational mortgages, I guess it's worked.

Another flaw is not allowing for inflation in rent.

somethingcorporate

How realistic is that 4.4% given the average rate over the long-term (i.e. last 20 years) is significantly higher than this?

Graham_Devon

wotsthat wrote: »

To all of these figures the value of the house at the end of 50 years needs to be added. So at the end of 50 years in the SouthWest the renter is out by £33k + whatever the 2012 £160k house is worth.

That's not taken into account for a very good reason.

They are talking about never moving. Therefore, one could assume the house is disposed off after you part, therefore, you'd never see the benefit of any increase in value.