Over a span of thirty years, renters may incur a financial disparity of approximately £340,000 compared to homeowners.
In a recent study by the Mortgage Advice Bureau (MAB), homeownership in England is highlighted as a potentially lucrative long-term financial decision, with significant wealth creation possibilities over time. The study underscores the financial differences between renting and homeownership, emphasising the potential savings and wealth accumulation that homeownership can offer.
## Financial Advantages of Homeownership
The study suggests that homeowners could save around £206,031 in housing costs alone over a 30-year period, excluding house price appreciation. This translates to potential savings of about £11,272 annually. When including house price appreciation, the savings could be even higher, potentially reaching up to £338,170 over the same period.
Regional variations in the financial benefits of homeownership are also significant. In London, the difference between renting and buying could amount to £540,687 over three decades, while in Bristol, it could reach £573,110.
## Barriers to Homeownership
Despite these financial benefits, many renters face barriers to homeownership. According to the study, 61% of renters cite high property prices, and 56% mention difficulty saving for a deposit as major concerns.
## The Current Housing Market
The study comes amidst a changing housing market. Mortgage rates have risen sharply in 2022 and 2023, with the lowest five-year fix for someone buying with a 20% deposit currently standing at 4.15%. Despite this, Nationwide is widening access to its 'Helping Hand' mortgage, allowing first-time buyers to borrow up to six times their income with deposits as low as 5%.
The average UK house price was 5.8 times the average annual salary between April and June this year, with the average house price in England currently standing at £271,619. However, house prices have not risen for the past three years, making them more affordable on average than they were 20 years ago.
## The Wealth Gap
Over a full 30-year period, it is estimated that homeowners could save £206,031 in housing costs alone, not including house price appreciation. If homeowners were to invest the 'saved' money compared to a renter, that sum could grow to £14,358 in ten years.
Over the last 20 years, house prices have increased 73% compared to earnings growth of 76%. If these savings were gradually invested over time, they could yield an additional £132,139. This means that, after 10 years, homeowners could be up to £12,157 better off than renters.
In conclusion, the study indicates that homeownership can be a more financially secure option in the long term compared to renting, especially when considering the potential for wealth creation through equity and savings on housing costs. However, renters often perceive homeownership as out of reach due to financial barriers. Understanding these financial advantages and addressing the barriers to homeownership could help bridge the wealth gap between renters and homeowners in England.
- The study by the Mortgage Advice Bureau (MAB) reveals that over a 30-year period, homeowners could save around £206,031 in housing costs, equivalent to approximately £11,272 annually, before accounting for house price appreciation.
- In London and Bristol, the financial benefits of homeownership are particularly significant, with potential savings amounting to £540,687 and £573,110 respectively over three decades.
- One barrier preventing renters from becoming homeowners is the difficulty in saving for a deposit, as mentioned by 56% of renters in the study.
- In the current housing market, the average UK house price is £271,619 and has not risen for the past three years, making it more affordable than it was 20 years ago.
- If the savings accumulated by homeowners over 30 years were invested, they could grow to £14,358 in ten years. When compared to a renter not investing, this represents a significant financial advantage of up to £12,157 after 10 years.
