Research from the Mortgage Advice Bureau (MAB), which compared the average cost of renting compared to buying, showed that homeownership builds equity and is a “long-term investment growth opportunity” which renters could miss out on.
The research showed that by the second year homeowners started to save money versus renters, with homeowners saving around £99.
The wealth creation gap between homeowners and renters continues to rise over time, and by year 10 homeowners can save around £12,157 compared to renters.
Over a 30-year period, homeowners could save around £206,031 in housing costs alone, not including house price appreciation.
MAB said that these savings could be invested further, meaning that the wealth creation gap could be widened even more.
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The report said that the wealth creation gap is wider in certain cities, with the “missed opportunity” in London coming to £540,687.
In Bristol, renters could miss out on £573,110 and in Manchester, the figure comes to £428,223.
Majority of renters believe homeownership is out of reach
Despite the financial benefits of homeownership, renters believe it is out of reach, with 65% aspiring to buy a home, but only 27% believe they would never be able to afford it.
Only 8% say that they prefer the flexibility of renting.
Around 7% of 18–24-year-olds and 11% of 25–34-year-olds say they think homeownership is beyond reach, but 56% of renters aged 55+ think they will never own a home.
Around 64% of renters think that buying a home is more financially secure in the long term.
Nearly two thirds of renters point to high property prices as buying barrier
Looking at barriers to buying, around 61% cited high property prices, 56% pointed to saving for a deposit, and 32% said that job or income insecurity was a factor.
Approximately 31% said that mortgage eligibility concerns were a barrier to buying, and 17% said that they had a lack of understanding around the homebuying process.
Around 56% of renters said they would consider buying if mortgage repayments matched rent, which is becoming increasingly possible with lender product innovation.
MAB pointed to low and no deposit products as well as shared ownership, joint borrower sole proprietor and first-time buyer incentives.
The report said that with the “support of a mortgage adviser, prospective homebuyers can be guided through the various options available and gain an understanding of exactly how much they could borrow based on their financial situation”.
‘Many renters are much closer to buying than they realise’
Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: “Our research reveals that many renters are much closer to buying than they realise, despite the barriers they perceive. Conditions for aspiring first-time buyers have improved considerably over the last year or so.
“In fact, there’s a real industry push to see what innovation can be brought to the market, meaning that taking that first step is far easier than it has been for the last decade or more. We welcome and support this, believing it will create a fairer society and ensure that homeownership is now a possibility for more people. With the right information, guidance, and support, the dream of homeownership is achievable – along with the significant financial opportunities that come with it.”
He continued: “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. With the Financial Conduct Authority also considering changes to responsible lending rules, providing more flexibility for consumers and helping more people get onto the property ladder, now is the time to discuss your options with a mortgage adviser.”
The research showed that the average buyer who could have borrowed £200,000 a few months ago could now borrow as much as £240,000.
“Acting now can lead to many thousands of pounds in long-term savings and investment growth. Homeownership builds equity, offers stability, and creates a foundation for future wealth. We strongly encourage renters to speak to one of our advisers to explore their options and take the first step toward owning a home – and their financial future,” Thompson concluded.
This story was first published on YourMoney.com’s sister publication Mortgage Solutions. You can read it here.
