Homeowners potentially over £300,000 better off than tenants

Michael Lloyd

October 17, 2019

kate davies imla

Today’s average homeowner could be better off by £352,500 over the next 30 years compared to the average private renter, the Intermediary Mortgage Lenders Association (IMLA) has found. 

IMLA’s latest report, entitled ‘The Intergenerational Divide in the housing and mortgage markets’, showed the average homeowner could expect to save £133,700 when paying a mortgage rather than rent and gain £218,000 of equity from paying the mortgage off.

Kate Davies (pictured), executive director of 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 house, there has been a marked decline in homeownership amongst younger people.

“This is not only due to the rise in house prices relative to income.

“Reduced mortgage availability after the financial crisis, and the need for buyers to find higher deposits, caused a sharp fall in the number of first-time buyers.

“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 near-disappearance of interest-only as a route to managing affordability has cut the number of options for first-time buyers.”

The report also found that mortgage rates would have to be in excess of 11.5% throughout the life of a loan before owning, with rental payments producing equal expected financial returns.

IMLA has called on the government to commission an independent cost-benefit analysis of the current regulatory regime for mortgages.

This is 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.”

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