Oh bloody hell, here we go again.
Another statement of the bleedin’ obvious given the sort of headline intended to bring forth rage clicks – and we fell for it, like we always fall for it, every single time. I’m falling for it right now. This column is part of the problem. And you clicked that, too, you bloody idiot! You are also part of the problem. Anyway, we are where we are.
Let’s get the boring fact bit out of the way so you can at least see what I’m ranting about. Earlier this week, ThisIsMoney.co.uk (“Financial website of the year”!) ran a story under the following headline:
Buying a home instead of renting could leave you £352,500 better off over 30 years – even if house prices never rise
To which the only rational response is – well blow me down with a sodding feather. What next? Papal religion mystery solved at last? Scientists at last locate ursine defecation points? Thanks for that, lads, this is a revelation.
The article relates to research from the Intermediary Mortgage Lenders Association which, in a “did a dog write this” kind of a way, has something of an interest in selling the public on the idea that having a mortgage is basically good.
Nonetheless, the numbers are pretty compelling. The total payments required to acquire the average £230,000 home, on an average 95 per cent mortgage, work out to £133,700 less than the cost of renting the same home over a 30 year period. On top of that, your lucky homeowner will end those three decades sat on £218,800 in equity, while all the renter will have to sit on is their poorly housed backside.
“Aha!” you think, in a desperate attempt to console yourself. “But this is only because interest rates are so low. We’ll see who’s laughing when they rise, won’t we?” Well, it turns out that’s probably the homeowner, too, because interest rates would have to hit 11.5 per cent for there to be parity in those two theoretical people’s finances. So, to sum up, you’re stuffed.
The article has been widely, and understandably, mocked on social media, for the way it seems to imply that it’s renters who are the ones making financially stupid choices, in roughly the same way in which your aunt keeps asking you why you’re still throwing your money away on rent and also why you don’t have a boyfriend.
In some ways, though, that’s unfair. Both the research itself and the ThisIsMoney report go to some pains to point out that high prices mean renters are excluded from all the financial benefits of home ownership: no one here is seriously arguing that the problem is the way young people are spending all their money on smashed avo and coke. What that mockery was really about was a deliberately anger-making headline of the sort publications – obviously not the New Statesman, but other, less reputable publications – put on stories in order to get you to hate click. This is the trap that we have all, once again, fallen into.
Even if the story is in one sense basically fine, though, it’s missing the point in another sense. Yes, if you’re lucky enough to have access to that initial deposit, then paying a mortgage is probably less expensive than paying rent on the same property. And yes, the fact homeowners are building up their equity rather than just funnelling cash to their landlord means they’ll end up with wealth at the end of the process that their renting peers aren’t lucky enough to have.
Yet the reason that money matters isn’t just because being rich is cool: it’s because it represents security. And that’s the real difference between owning and renting. If you own, then, sure, a spike in interest rates could do horrible things to your finances. But renters face the same problem with rent rises, which could price them out of the area they’ve made their home. On top of that, they have limited control over the maintenance and decoration of their home, generally aren’t allowed pets, and can still be thrown out at short notice a landlord’s whim.
That is the real reason that homeownership is better than renting – not because it makes you richer, but because it offers you a more secure basis on which to build a life. We can’t really blame ThisIsMoney for not spending enough time thinking about the non-financial aspects of the housing market. But we can blame this government for spending the last nine years studiously ignoring them.