[fusion_text]In the United Kingdom, as in many other countries around the world, buying your home is a national obsession and status of wealth that has led to the price of housing reaching record highs and affordability levels being extremely stretched. Renting for the long term is seen as a social negative by the general public with purchasing a property a primary aim of most Brits at some point in their lives. The perception is that the purchase and ownership of a home within the individual’s lifetime will be their greatest investment. This article challenges that myth from a financial perspective, leaving out the emotional attachment. An individual would be much better off financially, renting a home whilst investing the savings from the initial deposit, stamp duty, legal fees and maintenance costs in Alternative Finance, such as peer to peer lending which can generate on average an annualised net return of 8.5%. As you will see the opportunity cost between buying versus renting & investing is substantial!

True Cost of Owning a Home
When comparing renting versus buying a home, all factors need to be considered. Searching online when buying a home most of the websites will only consider mortgage re-payments and potentially insurance. However, many ‘other costs’ that are applicable will not be shown. These ‘other costs’ such as maintenance charges, landscaping, home furnishings, repairs, replacements, and renovations. In the long term these “other costs” can add up substantially over time.
Here is an example, of a 4 bedroom detached house in garden of England, Kent – Buy v Rent

According to www.home.co.uk, the average cost of a 4 bedroom detached house in Kent is £520k, in comparison the average monthly rent for the same house is £1,716.

Using the above figures we can calculate the following with basic assumptions:

  • You intend to be living in your home for at least 25 years
  • The purchase price is £520k
  • Your deposit at 25% is £130k + stamp duty at £15.8k + legal/surveyor fees of £2k
  • Your mortgage will be for £390k
  • Your interest rate on your 25 year mortgage will start at 4.95%
  • Your annual mortgage repayment will be £27,532
  • The annual rate of inflation assumed is 2%
  • Your assumed annual maintenance, repairs, renovation costs at 1%

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In Year Inflation-linkedHome Value @ 2% Annual Mortgage Payments @ 4.95% Maintenance / Renovations @ 1% Total Costs of Owning   Annual Rent Payments Annual Saving Investment in P2P @ 8.5% return Deposit + Annual Savings Interest from P2P Loans @ 8.5%
1 £525,300 £27,532 £5,253 £32,785   £20,592 £12,193 £172,502 £12,559
5 £568,602 £27,532 £5,686 £33,218   £22,289 £10,929 £291,009 £21,942
10 £627,782 £27,532 £6,278 £33,810   £24,609 £9,200 £496,607 £38,184
15 £693,122 £27,532 £6,931 £34,463   £27,171 £7,293 £794,920 £61,704
20 £765,263 £27,532 £7,653 £35,185   £29,999 £5,186 £1,231,517 £96,072
25 £844,912 £27,532 £8,449 £35,981   £33,121 £2,860 £1,874,801 £146,650
Total £844,912 £688,300 £168,255 £856,555   £659,568 £196,987 £1,874,801 £1,530,064

[/fusion_text][separator style_type=”none” top_margin=”5″ bottom_margin=”5″ sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]Review of the results:
Comparing Buying a home v renting & investing in P2P Lending

Buying a home
So you would have bought a house at £520k, with an initial deposit of £130k, over 25 years at the basic rate of inflation (ignoring any future price bubbles) the property will be worth £845k.

Renting & Investing in P2P Lending
However, if you used your initial deposit of £130k + the stamp duty and legal fees of £17.8k + the annual savings of renting and prudently invested it in Peer to Peer lending at an average annualised rate of return of 8.5%, your Peer to Peer Lending Portfolio will be worth an incredible £1.875m, approx. £1million more than your home as an investment. Even in today’s money at its present value it would be an extra £627k. After 25 years, you could choose to buy the house outright, and still have £1 million of investments generating you a great income into your later years of life.

Summary
Obviously the above analysis is pure a financial comparison, which ignores the emotional attachment and security of owning your own home. Whilst peer to peer lending as an investment is still in its early stages of maturity but it has so far proven to be a stable, secure source of income.

With many people in the UK finding the cost of owning a home extremely difficult, it is important for them to know that there is indeed a much more lucrative alternative out there for them.

For details on the latest peer to peer lending investments options, review your investment options with Haven Investor.[/fusion_text]