Renters could end up £340,000 worse off than homeowners over 30 years

Renters end up hundreds of thousands of pounds worse off than home owners in the long term, a new study has claimed.

Renting rather than owning in England could result in the average person being £338,170 poorer over three decades, according to the analysis by mortgage broker, Mortgage Advice Bureau.

The research compared the average upfront and ongoing costs of both renting and owning, using publicly available data from sources including Zoopla, the Office for National Statistics and the UK Government.

It compared the average cost of renting versus buying over various time horizons, and found that within two years, homeowners already start to be better off.

As annual rent payments rise with time and mortgage payments remain largely fixed, the gap between the cost of renting and owning a home rises as time goes on.

After 10 years it is estimated homeowners could be up to £12,157 better off than renters.

The study then looks at what would happen if a homeowner took the money they had 'saved' compared to a renter, and invested it.

If they did, that sum could grow to £14,358 in ten years, generating an additional gain of £2,202.

By year 14, those invested savings could reach £39,539 – enough to fully recoup a typical first-time buyer deposit.

And by year 16, invested savings could grow to £55,547 – enough, for example, to repay the average student loan debt in England.

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 these savings were gradually invested over time, they could yield an additional £132,139, taking the total missed financial opportunity for renters to £338,170.

According to the study this means that after 30 years, the financial cost of renting versus homeownership could reach up to £30.88 per day, or £11,272 each year.

In some cities, the gap is even wider. In London, the missed opportunity rises to £540,687 – or nearly £50 per day.

In Bristol, renters could miss out on a staggering £573,110 of wealth over 30 years, while in Manchester, the figure reaches £428,223.

Interestingly, home buyers could save more in Bristol than in London because the monthly difference between rent and mortgage payments is much greater in Bristol.

Homeowners there see bigger savings earlier on.

The research did not include potential house price growth as part of the calculations.

Over the past 30 years, the average UK property price has risen by 414 per cent from £51,617 to £265,497.

While this level of growth may not repeat itself over the next 30 years, it is certainly more likely that house prices will rise over the next three decades.

However, it did include typical one-off costs such as the five-week security deposit paid by renters.

For buyers it included the typical deposit, valuation fees, mortgage arrangement fees, home survey fees, solicitor fees and buildings insurance. It also included regular maintenance and repair costs that homeowners have to contend with.

It also factored in regular costs for both buyers and renters including council tax, utilities, broadband, contents insurance, TV licence.

However, where the study may fall short is stamp duty costs. In terms of stamp duty, the calculations are based on the fact that an average first-time buyer won't pay stamp duty on homes bought for below £300,000.

It also does not factor in future moves by either renter or buyer, because it becomes an increasingly difficult calculation with too many variables.

Stamp duty costs for movers can be a major financial drain over time as they upsize and downsize.

Someone moving to a £300,000 property faces stamp duty costs of £5,000, someone buying a £500,000 home will have to stump up £15,000, while someone moving to a £750,000 property will have to pay £27,500.

Two thirds of renters aspire to buy a home, according to a separate 5,000-strong survey by Censuswide. However, more than a quarter believe they'll never be able to afford it.

Ultimately, the challenge of getting on the ladder will depend on where someone lives in the country as well as how much they can afford to save each month.

The most commonly cited barriers to homeownership are high property prices, saving for a deposit, job or income insecurity and mortgage eligibility concerns, according to the survey.

However, many of these perceived obstacles may be more surmountable than renters realise.

For a start, house prices have not risen for the past three years, while average incomes have been going up.

The average house price stands at £271,619, according to Nationwide Building Society, which means average prices are still below the peak in August 2022, when they hit £273,751.

This has resulted in house prices becoming more affordable when compared with average incomes.

In fact, Nationwide says that house prices are more affordable now on average than they were 20 years ago.

Between April and June this year, Nationwide revealed the average UK house price was 5.8 times the average annual salary of someone in full time work.

This is marginally down on the same three month period in 2005 when the average house price was 5.9 times the average annual full time salary.

Over the last 20 years, house prices have increased 73 per cent compared to earnings growth of 76 per cent over the same period.

However, affordability has deteriorated from a mortgage cost perspective over the past five years given the sharp rise in interest rates in 2022 and 2023.

In July 2020 someone buying with a 20 per cent deposit could bag a five-year rate as low as 1.7 per cent.

Now, most buyers are securing mortgage rates around 4 to 5 per cent. The lowest five-year fix for someone buying with a 20 per cent deposit is 4.15 per cent.

Someone buying a property in 2020 with a £200,000 mortgage at 1.7 per cent with a 25 year repayment term would have been paying £818 a month.

However, someone buying today with a £200,000 mortgage today and a 25 year term on a 4.15 per cent rate can now expect to pay £1,072 a month.

More than half of renters said they would consider buying if mortgage repayments matched their rent, according to a survey by Mortgage Advice Bureau.

Ultimately, with rents having risen significantly in recent years, there will be locations where mortgage payments will be lower than rents on like for like properties.

Saving up for a deposit is often the biggest barrier. However, many lenders also now offer mortgages with deposits as low as 5-10 per cent.

Some even offer 100 per cent mortgage options - though the interest rates on these products can be high.

Lenders have also been relaxing mortgage affordability rules in recent months enabling people to borrow more.

An average buyer who could have borrowed £200,000 a few months ago could now borrow as much as £240,000, according to Mortgage Advice Bureau.

Nationwide is widening access to its 'Helping Hand' mortgage to allow first-time buyers to borrow up to six times their income with deposits as low as 5 per cent.

Eligible first-time buyers can now apply for this mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary, down from £55,000.

For some renters, this could mean they don't have to save as long for a deposit as they may have predicted.

The survey revealed that the average time taken to save for a deposit among homeowners was just 2.84 years.

In contrast, the average renter has been renting for 7.43 years.

Ben Thompson, deputy chief at Mortgage Advice Bureau thinks many long-term renters may have already had the time to save and buy, but haven't acted.

'Our research reveals that many renters are much closer to buying than they realise, despite the barriers they perceive,' said Thompson

'Conditions for aspiring first time buyers have improved considerably over the last year or so.

'It's also possible to borrow quite a lot more now than last year. Therefore, it may well be likely that you can buy your first home much sooner than you think.

'Acting now can lead to many thousands of pounds in long-term savings and investment growth.

'Home ownership builds equity, offers stability, and creates a foundation for future wealth.'

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.

Buy-to-let landlords should also act as soon as they can.

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What if I need to remortgage?

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone.

What if I am buying a home?

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people's borrowing ability and buying power.

What about buy-to-let landlords

Buy-to-let landlords with interest-only mortgages will see a greater jump in monthly costs than homeowners on residential mortgages.

This makes remortgaging in plenty of time essential and our partner L&C can help with buy-to-let mortgages too.

How to compare mortgage costs

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

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Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you.

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage