Home ownership has long been the nation’s favourite aspiration, but it’s not the only way. Long-term renting is on the up and not simply because people can’t afford to buy, though is of course a huge problem that house prices are still rocketing and the average age of first-time buyers is steadily increasing.
The fact is that buying a property isn’t the right path for everyone, and the journey towards home ownership can be difficult and may not be the sensible option. There should be no stigma attached to non-homeownership; it’s a decision that everyone needs to make for themselves. With that in mind, we’ve put together four important considerations to help you decide whether to go one way or the other.
Do you want to live in a place that belongs to you or are you happy in a property owned by someone else? Buying your own home means that you have the freedom to make decisions about the property and carry out any improvements you like (within reason), particularly if you are the freeholder. There are more restrictions about what you can do to the property if you own a leasehold flat, since many improvements have to be approved by the freeholder.
If you rent, you often need permission from the landlord for most things, even putting up shelves and painting the walls. Many landlords won’t accept pets or even children, so starting a family as a tenant may be tricky.
On the other hand, renting gives you the flexibility to move once your minimum tenancy period has expired. Giving notice on your rented home is a lot less hassle than having to sell the property.
A mortgage is a huge financial commitment, and a big chunk of your monthly repayments are to cover the interest on the loan, which is why it takes so long to pay the whole thing off. The average mortgage term is 25 years, but the number of first-time buyers taking out a 31-35 year mortgage has doubled over the last 10 years.
Renting is a much more flexible arrangement. Should your personal circumstances change, it’s easy to move to a different place, perhaps one that is closer to work, or cheaper to rent. And while you may not be able to afford to buy a house in a desirable area, renting there may well be within budget.
On the other hand, renting is often decried as ‘dead money’ when compared to the returns available on a property investment with the help of a mortgage. House prices have risen significantly over the last years, and while the cost of mortgages has gone down, average rents have gone up. Depending on the area you want to move to, monthly mortgage payments could work out cheaper than the cost of renting in that area.
For anyone contemplating a property purchase, crunching the numbers is key. Work out how much you can afford to borrow and how much you need to save, and make your decision from there.
If you’ve decided to buy a property and are looking at getting a good mortgage rate, chances are that you will need to put down a deposit of at least 5% of the value of your new home. That is the requirement if you wish to take advantage of the government’s Help to Buy scheme.
Of course, it is possible to put down a larger deposit which acts as an investment in the house and hopefully increases in value over time. A larger deposit may also mean lower monthly repayments, but unless you have access to some cash, saving up could take a while.
If you choose to rent a house or flat, the only upfront costs are the tenancy deposit (usually a month’s rent). Since the Tenant Fees Act 2019 came into force, there are limitations on what landlords and agents can charge tenants. Potentially, this will leave you with more disposable income in the short term. Instead of saving up for a £20K deposit on a mortgage, the money is now available for, say, a holiday or a new car.
The difference between a property asset and a savings & investment account is that bricks and mortar need looking after: with ownership comes responsibility. From roof leaks to boiler breakdowns, exterior maintenance and much else besides, it’s down to you to maintain the condition and value of the property.
As a tenant, you don’t have to worry about any of that. One phone call to the landlord and it’s his legal responsibility to take care of any problems with the building. If you’re not the DIY type or don’t have the budget available to cover the cost of repairs, being a tenant might be a great deal more appealing.
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