Homebuyers keep more by spending as 5% deposit yields stronger returns than one-year fixed ISA
Placing just a 5% mortgage deposit makes more financial sense when it comes to the potential annual return versus investing in a one-year fixed individual savings account (ISA), according to research by Wayhome.
Although it may seem like the smallest of margins when it comes to homeownership, Wayhome’s research showed that a 5% deposit would have still yielded a stronger return of investment over the last year versus a one-year fixed ISA, despite the latter being specifically designed to boost an individual’s savings pot.
Over the last year, the average UK house price has jumped by 9.8%, up from £268,115 to £294,329, despite increasing mortgage rates and a cooling rate of house price growth. A year ago, a 5% deposit would have required buyers to put £13,406 down when securing a mortgage. Today, this 5% investment alone would have increased to £14,716 in value, a return of £1,311.
In contrast, investing the same £13,406 into a one-year fixed ISA at the average rate of 0.43% would have returned £13,463 over the last year, a boost of just £57 on the original investment.
As a result, the Wayhome research found that investing in the average UK home with a 5% deposit has proved far more lucrative over the last year, outperforming the one-year fixed ISA by £1,253, or 9.3%.
Savers stand to make the most by spending on property in the East Midlands and North West, where the increase seen on a 5% deposit over the last year has outperformed the performance of a one year fixed ISA by 11.8%.
Yorkshire and the Humber (11.3%), the North East (11.3%) and the West Midlands (10.3%) have also seen some of the strongest property market returns on a 5% deposit versus those available via ISA investment.
In Scotland, the average buyer placing a 5% deposit would have seen a 5.7% increase over the last year, returning £508 on their original investment of £8,853 – the lowest of all areas of the UK. Still, this more marginal bricks-and-mortar equity boost is still £470 higher than the return they would have seen making the same investment into a one-year fixed ISA.
“Property has always made for a sound investment, but with house prices starting to cool in recent months, some buyers may be pondering whether now is the right time to buy,” Nigel Purves (pictured), co-founder and chief executive at Wayhome, commented. “Especially given the fact that a string of interest rate hikes have pushed up the cost of borrowing over the last year, while also improving the returns seen across the wide variety of savings products available to the nation’s savers.
“However, as our research shows, even the most marginal of property investments is likely to yield a far stronger return when compared to investing in a one-year fixed ISA. So while there may be a great deal of noise about the benefits of ISA investment as we approach April’s deadline, those who are able to overcome the initial barrier of saving a deposit are far better off looking to the property market.”
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