The latest research from high-net-worth mortgage broker, Enness Global, has revealed the huge difference in monthly cost when it comes to renting and buying at the very top end of the market.
It may seem logical that those able to afford a £10m house would purchase it rather than renting. However, a vast number of high-net individuals prefer to rent in the prestigious property playgrounds they reside in around the world.
Hugh Wade-Jones, managing director of Enness Global Mortgages, explains why:
“We encounter a large number of high-net individuals who opt to rent and they do so for two reasons. Firstly, it enables them to dip in and out of various cities around the world during different points in the year. However, it also allows them to upgrade their home to stay at the top of the property pecking order. Should they find someone else has snapped up a better property, they will go on the hunt for something even more impressive, whether it be size, mod cons or location.”
When buying a £10m house, there are initial costs to consider. Should it be purchased as a second home the cost of a deposit, second home stamp duty tax, legal fees and the other costs involved can total as much as £4.5m.
But why is buying better than renting on a monthly basis?
Take London for example. Based on current values per square foot in the high-end rental market, the average cost of renting a property worth £10m will set you back £18,489 per month.
However, a high-end European buyer with a clean financial record could secure a mortgage on the same property with a 70% loan to value, a £3m deposit and with an interest rate as low as 1.9% per annum.
That would result in the monthly interest on their loan totalling £133,000 a year, or £11,083 per month.
That’s a difference of £7,406 between the monthly cost of renting and the monthly cost of mortgage interest, leaving plenty of space to pay a proportion of the mortgage balance should they wish.
On a £20m property, there is also a saving to be made. The average cost of renting each month sits at an average of £26,180 while the cost of mortgage interest would reach just £22,167 each month. Again, a saving of thousands of pounds and plenty of room to pay the mortgage balance itself.
Hugh Wade-Jones, managing director of Enness Global Mortgages, continued:
“You may think those in the market for ten and twenty million pound houses don’t care whether they buy or rent and to some extent, this might be true.
That said, the majority of high-net individuals we work with are highly intelligent businessmen and women and so it’s more of a case of making smart investments over the actual money-saving itself.
Renting does provide a more versatile way of living for some. However, for the same monthly cost they could pay the interest on a mortgage, a proportion of the mortgage balance itself, and actually own the property as a result.
Renting, on the other hand, is a monthly cost that equates to nothing more than money down the drain, so to speak.”