In the UK, we are so obsessed with home ownership that we sometimes fail to consider whether it’s best to buy or if we’re better off renting.
Home ownership rocketed under Margaret Thatcher’s Right to Buy scheme, from 9.7 million to 12.8 million. However, the proportion of home owners has been falling since 2007, when a shortage of new homes and a little thing called the credit crunch combined to make it much harder for would-be buyers to snap up a starter home.
If you’re renting and wondering if you should buy then it’s worth remembering that not everyone in the world wants to own their own homes; in some countries it’s normal to rent rather than buy.
For example, in Germany 46% of people own their homes, compared to 71% in the UK. Yet OECD research showed that 93% of Germans say they are satisfied with their current housing situation, compared to 89% in the UK.
Which is cheapest?
Of course, a major question is: which is cheapest? Buying a home means you end up with an asset you can sell later in life, allowing you to downsize or fund care, or bequeath to your kids – but is it more expensive over the course of a year?
After all, there are repairs and maintenance to be carried out, so are the renters at least better off for now?
Sadly for them, no. Rising rents and falling interest rates have combined to mean that renters tend to pay more over the course of a year than their home-owning peers. Research by Halifax found that renters pay an extra £900 a year on average.
That must be particularly galling for renters who want to be buyers; not only are they stuck handing over money to a landlord instead of paying for their own home but also it is costing them more year on year.
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The ups and downs of home ownership
Although the benefits of home ownership may seem pretty obvious – slowly buying a valuable asset, living ‘rent free’ once the mortgage is repaid, the potential for the value to increase, and the right to make changes – there are definitely some downsides.
A big downside is the size of the financial commitment – you can move into a smaller rented home far more easily if you need to reduce your outgoings. If you’re buying a home with a mortgage, you have to sell that property, pay various solicitor and agent fees AND potentially pay an early redemption charge too – it’s a much bigger tie than a rented home.
That can also be a problem if you buy with a partner and later separate – selling and divvying up a home is much tougher than simply moving out and moving on.
And if you need to move to a new part of the country for work or an opportunity, it’s much easier to do if you don’t need to sell your home first.
If you have to stretch yourself to afford the mortgage, you’ll have less spare income for going out, holidays and other discretionary spending.
Of course, renting a home can mean frustrations with landlords and letting agents, high annual fees on top of the rent, and slow repairs and maintenance.
Also, rents are currently described as “rocketing” by the charity Shelter, thanks to high demand for suitable homes (demand partly fuelled by the lack of new homes being built), so it’s getting pricier to rent.
Of course, home buyers may see their asset rise in value but there is always a risk it will fall too, as happened during the 2007/08 financial crisis. So a home may offer stability, but some owners now find themselves trapped and unable to sell thanks to their negative equity (i.e. they owe the bank more than the home is worth).
Can you afford to buy?
If you prefer the idea of owning your own walls, there are a lot of different costs to factor in beyond the deposit. There will be legal costs, the price of a survey, Stamp Duty, any moving costs and your monthly bills – which can be a shock if you’ve been renting somewhere where all bills are included.
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So come on, what’s best?
Hmmm, tough one. It really depends on your circumstances and not just your financial circumstances but your more general situation. If you want the freedom to up sticks and move whenever you like, or if you like knowing you’ll never have to pay for a faulty boiler, then home ownership is probably not for you.
But if you want to invest in a property, upgrade it, have an asset to sell or leave to your children, or you simply crave the stability of owning your own roof then buying could be best.
And don’t despair if you want to buy a home but feel it’s out of reach. Schemes such as Help To Buy allow buyers to move into a new home with just a 5% deposit, using an equity loan or the mortgage guarantee scheme. You can learn more about the help available via the official website.