In a recent Instagram post, we asked your reasons to rent over buying your own home and were surprised by some of your answers. Top of the list of reasons was money. Most people would buy a home if they could, but the deposit required to qualify for a mortgage was well out of their reach given the difference between house values and average earnings. This was especially the case for those who lived in the South of England. As you’ll see affordability was also on the list, but it wasn’t at the top.
Most people believe that the greatest barrier to home ownership is getting a mortgage and it’s interesting to note that although mortgages have been around for a thousand years or so, their enormous popularity is relatively new.
To qualify for a mortgage you will usually have to earn at least three times what the property you propose to buy is worth, and you’ll have to have a deposit (at least 5% but more likely 15% and more) as well the money for all the other expenses, lawyer’s fees, insurance and where applicable, stamp duty. There is a first-time buyers exemption to certain levels of stamp duty, the tax on buying a property.
Where you live is just as important as how much you earn. The UK’s highest prices are in London’s Westminster. There, semi-detached properties sell for 4,568,667, thirty times the value of a semi-detached home in the North East of England (which sells for an average of 151,206.) According to the property website Zoopla, the average first-time buyer’s deposit is £26,000 in the North of England rising to a huge £140,000 in the South.
When you realise that once you’ve spent every penny you have on a deposit you are tied to a financial institution that has no interest in you as a person and is likely to be governed by inflexible rules, it’s easy to see why affordability is not the only possible benefit you can get from dealing with a landlord rather than a mortgage company, building society or bank. If you get into financial difficulties you may find it much easier to negotiate with a landlord than with a bank. Your landlord gains little by kicking you out (especially when the economy is shaky) and may be prepared to negotiate a way through your problem in a way a bank or other financial institution would not.
If the worst comes to the worst, and you do have to leave a rented home for somewhere less expensive, you lose nothing other than (possibly) your security deposit. This is the only money you have tied up in the property. If you default on a mortgage payment, and your home is repossessed, you walk away with nothing. This is still the case, even if you have paid off 99% of the mortgage. Mortgages can be complex and are not always well explained. Some believe they have a great deal from their bank when in fact what they are paying is an interest-only mortgage. They still have the whole debt to repay at the end of the mortgage term.
No unforeseen expenses.
Everyone dreads those financial disasters which from time to time play havoc with the most carefully planned budget. If there’s a hole in the roof, if the dishwasher goes wrong, if the heating fails, it’s not up to you to fix it. Maintenance of the property is not usually a tenant’s responsibility, but check your rental agreement. If your landlord doesn’t do the repairs you need there is a simple procedure where you can take him to court to get these done. You can always vote with your feet and get a new landlord.
Lower monthly expenses.
Even when the mortgage payment on a home is less than it would rent for, the cost of ownership of that home is almost certainly higher when you take into account taxes, repairs, and maintenance. If you enjoy city life you may find it impossible to buy a home in the city centre. Flat sharing is a time-honoured way of living somewhere you could never afford on your own and doesn’t need a heavy commitment. Several of you said this was an important factor, especially after a break-up or divorce. Lower monthly housing costs mean a higher standard of living. You’ll have money left over for other things, like holidays.
The whole process of finding a house, bidding against other buyers, the expenses of valuation, getting approved for a mortgage and waiting for that mortgage to be processed is time-consuming and incredibly stressful. And, if you think buying is bad, wait until you try selling! Psychologists liken the process to divorce ! The process of moving house is quicker and hence much easier when you are exchanging one rented property for another. If you don’t like the property, the landlord or the area, you can simply move when the tenancy is up.
Your number one reason for renting was flexibility. If you need to change locations for a new job, for a new partner, for any reason at all, the process is simple. Give notice, move out. Place a deposit, move in. These days many view flexibility as essential in order to stay employed or maximise their career opportunities
Given all this, why is it that so many of you still want to buy, as soon as you can? Is it some instinctive urge to pass the ancestral acres onto the children? If so, inheritance tax will do its best to stop you! Some of you mentioned the need to put down roots, but this is psychological. You can still put down roots while renting.
The one and major reason to buy a home is the way it tends to increase in value. You can usually sell a property for more than you bought it. Sometimes, a lot more. This might seem ridiculous at times of financial crisis. Your home’s value can also drop below the value of your debt to the mortgage company making it difficult to sell. The market for housing always seems to bounce back, eventually. The question is, do you have the time to wait?
What then is the best advice with regard to housing? Should you live a spartan life saving every penny towards a deposit for your first home? Should you embrace the idea of renting?
What about later in life when you’re on a fixed, retirement income and the lack of maintenance and other unexpected expenses is especially welcome?
Sadly there is no advice which fits everyone especially as circumstances change with time. What fits one family today won’t fit that same family tomorrow. All we can say for certain is that there will always be a need for housing. Despite the fashion for home-ownership in the UK, renting has become an increasingly attractive option.