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Sky high house prices make letting cheaper?

Agent’s fees for new tenancies currently stand at £2011 on average. If a tenant moves property an additional four times in the period, then they would pay £1,380.32† in agent’s fees over the 25 years.

In total, therefore, the average tenant can reasonably be expected to spend £301,175.74 on housing costs over a 25-year period, bearing in mind tenants rarely pay for repairs or redecoration themselves

A 20% deposit on the average property, priced at £164,455, would be £32,891.00. If the buyer then secures a capital repayment mortgage on the property at 5.5%, over the course of 25 years, the buyer will spend a total of £275,267.00 on basic housing costs.

However, there are many additional costs incurred when buying a property as opposed to letting, including solicitor’s fees, stamp duty and surveys. Maintenance and repair of a house is also the responsibility of the owner-occupier. Although, research suggests that the cost of repair and maintenance has gone down by 17% in 2008/92.

Although letting a property is cheaper in the short term, a buyer will always hold the property as an asset whereas the tenant does not.

However, under current legislation, those who own their own home are required to contribute to the cost of their care in old age, which in practice usually means that homeowners are forced to sell their property.  Those who do not have significant assets, on the other hand, will have a good chance of their care being paid for by the state.

Although costs can vary greatly, it would be reasonable to estimate the cost of residential care at £550 per week or £28,600 per year, which represents 17.4% of the cost of the average house. Assuming this ratio is maintained, it would therefore take less than 6 years for the capital value of the house to be eroded by the cost of care.

“Britain is often thought of as a nation of homeowners, but our research shows that, even if you can muster up a significant deposit, buying your own property can be cripplingly expensive over the course of the standard mortgage term of 25 years.

“With sky high house prices, continuing problems over the availability and affordability of mortgages, and the prospect of being eventually forced to sell your home to pay for elderly care it makes sense that increasing numbers of people are turning to the private rented sector as a long-term and permanent lifestyle choice.

“The simple truth is that, for most people, the British passion for homeownership no longer makes financial sense.”

What do you think? Have your say using the comment section below.


*The Average UK House price is £164,455 – Land Registry (February 2010)

† Inflation-adjusted (3% p.a.)

‡ Estimate

1 Citizen’s Advice Bureau Briefing – Let Down (May 2009)

2 ‘Cost of housing declines by 17% over the past year’ – Halifax (27/06/09)

3 ‘Average spend on home improvements reaches £5,300’ – Halifax (25/05/09)

4 ‘AA British Insurance Premium Index’ – AA (October 2009)

5 Not applicable for first-time buyers for two years. (Budget 2010)

0 thoughts on “Sky high house prices make letting cheaper?

  1. Hamish McDaft says:

    That at the end of that 25 years the buyer has a paid for asset, the renter dosen’t. Anyway here in Aberdeen prices will cotinue to increase by 10% YOY