Delays in getting on the housing ladder will cost the average first-time buyer more than £270,000 over their lifetime.
Those who never buy will cost taxpayers dearly, because they will drive up housing benefits and long-term care costs to “truly unsustainable levels”.
The forecasts are from Brian Hall, a housing market analyst whose company, The Model Works, has been looking at the growth of the rental market at the expense of the first-time buyer with growing concern.
Back in the 1960s the average age of the first-time buyer was 24. Today, according to Moneysupermarket, it is 37.
Based on market data averaged over 30 years, The Model Works has calculated that the returns from investing all the savings from buying a home at 24 as opposed to 37 could over a lifetime amount to more than £270,000 at today’s value (the calculation assumes a tax efficient savings scheme).
Hall said: “That first-time buyers are getting older is a well-established fact.
“But we believe this is the first time that the full cost to those affected has been quantified, and of course millions are affected.”
He points out that mortgage repayments are pegged to the original purchase price, while rents rise over time, and so the savings from home buying increase year on year.
Buying at 24 also reduces the term spent renting by 13 years, compared with at 37. Finally, tax breaks and compound interest over a longer period contribute significantly to the total.
The worse-case scenario is to be excluded from home ownership for life, renting in the private rental sector, with rents continuing to rise for decades after the mortgage would have been repaid, meaning that tenants find it difficult to save and are therefore unable to accumulate equity.
A further danger, Hall warns, is posed by auto enrolment in a workplace pension scheme.
He says this will further erode disposable incomes, and to this new expense must be added rising rents and student loan repayments, making it even more difficult to save a deposit.
However, opting out will result in a loss of employer’s contributions.
The Model Works previously linked growth in the private rental sector with rising demand for housing benefits, and now research by Partnership has found that almost half of home owners expect to sell or let out their property to pay for their long-term care. Tenants do not have this option and may require comparable support from the State, says Hall.
He said: “If current trends continue, the total cost of delayed home ownership and exclusion for life could cost the taxpayer tens of billions of pounds per annum, and these costs will rise as the retired population is expected to double by 2050.
He warns that taxpayers are already providing “staggering levels of support” to non-home owners and says the problem can only worsen unless dealt with properly.
“Somewhere in all the data and opinion is a simple cost, risk and payback model,” said Hall.
“Faced with the facts, it becomes crystal clear that doing nothing is not an option.”
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Comments
I am sorry, I missed this article and so was slow in responding.
I agree with Chris's observations. The point about housing benefit is that it is driven in part by the number of people renting. As this rises (the CML claim that buy-to-let loan values are rising at 18% last year, or doubling in five years) so demand will rise. I acknowledge that housing benefit doesn't cover the entire amount but double the numbers renting and, all things being equal, demand will rise. Caps will reduce the increase but not reverse it.
I would also argue that paying rent rent for life will reduce one's ability to save and make one more dependent on the state. I once worked out one would need to have £100k saved to pay one's rent from retirement to death and if one doesn't the state has to step in. How many will?
This report assumes that tenants require benefits and government assistance to cover the cost of the rent, which is incorrect. In our experience, only 1 tenant in 6 requires housing benefit.
It also assumes that all these tenants will require long term care, paid for by the state. Firstly only 20% of us will require long term care and once the government has introduced it's £35k limit (Or whatever it will be), savings and not property can cover the cost of long term care.
Tax breaks, what tax breaks! Tax breaks on rental property only applies to interest on the mortgage, not the capital, which tends to be more expensive than a conventional residential mortgage in the first place. And of course the cost of repairs. Big deal. Tenants don't have to worry about repairs as the landlord covers this.
In the last 12-months, my tenant paid me £6000. (£500 per month)
The bank charged me £4800 in interest, I paid £600 for new carpets, £65 for a new kitchen sink tap, the boiler service came to £100 and £90 for the wiring inspection. It basically cost me £5655 to own and maintain the house and I was £345 up, which I'll pay 20% tax on. Well I'm not really up, because as each year ticks by, I'll need to set aside some money to pay off the mortgage capital, plus big ticket items like a new Kitchen, Bathroom, Boiler, garage roof will kill any profit on the years they come round!!!!
I would say that the tenants are doing fairly well in the long run, especially when house prices are stagnant or falling. Then when interest rates start shooting back up to 4 & 5%, the landlords are really going to feel the pain.
The one thing this report has got right is that it is always better to buy property rather than rent, if you can eventually clear the mortgage because then you have something that provides an income, but if you can never clear the mortgage and simply end up selling the property to pay off the loan, then you have done little more than provide a tenant with a home and had a life of hassle.
It's like anything in life. Some people start business and make lots of money and others make a loss and go broke. This report seems to suggest that buying is good and renting is bad, when in fact it is not that simple.