High mortgage costs reduce home ownership benefits
Property price inflation and interest rate increases have substantially decreased the financial benefits of taking out a mortgage to buy a home rather than renting, over a 25-year period.
The cash benefit to mortgage borrowers has reduced 75% over the past 12 months according to the latest annual Rent vs Buy index compiled by Abbey.
The research calculates the cost of home ownership based on a 90% loan-to-value 25-year repayment mortgage, at 6.5%. It also takes into account essential home maintenance costs.
The index shows the 25-year saving from buying, rather than renting, has fallen from £24,000 in 2006, to £5,811 in 2007.
In six regions of the UK, homebuyers are already worse off than their counterparts in rented accommodation.
According to the study, the average cost of buying a home over 25 years is £437,925 compared to £443,736 for those renting.
The gap has been narrowing since 2001, when the financial benefit to home buyers stood at £135,000.
However, the home buyer actually owns a property at the end of the 25 years and will benefit from house price rises, as the value of the equity increases over time.
There is little doubt that people are still better off buying a property and that it is worth the struggle for first-time buyers to get on the property ladder.
Abbey believes that mortgage lenders must come up with new initiatives so that more people can achieve their goal of home ownership.