Why, and when, should you get on the property ladder?

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The gradual decline of owner occupation and the rise of private renting over the last 30 years has been particularly pronounced for the 25-34 year age group, only 25% of whom now own their own homes compared to 1989. ‘Generation Rent’ are stuck in the letting markets, struggling to get onto the housing ladder. 

But is it all bad? After all, renting is the norm in other countries wo don’t share our national obsession with home ownership. Here in the UK, whether you choose to rent or buy depends entirely on your personal situation. There are pros and cons to both, so let’s take a closer look.

What are the benefits of living in rented accommodation?

While owning your own home tends to be hailed as the most desirable lifestyle outcome, it’s not for everyone. Renting has the definite advantage of being a more flexible option, handy when you have not yet made any long-terms plans in your life. If you’re not sure whether you’re going to stay in the same job or the same area, and you’re not committed to settling down with a partner, renting a home gives you the freedom to relocate and move out whenever suits.

As regards the property itself, other than your monthly rent and bill payments there are no obligations to worry about. Since you don’t have a mortgage, you’re unaffected by housing market movements affecting interest rates or capital growth, or the dangers of negative equity and repossession. It’s the property owner who bears the responsibility and the stress of ownership.

The same applies to property maintenance and repairs. From boiler breakdowns to leaky roofs, new carpets or garden fencing, all you have to do is to inform the landlord and the cost and responsibility for sorting things out falls to the property owner.

And the downsides?

While renting is the flexible, carefree lifestyle option, there are obvious disadvantages too. Security of tenure is perhaps the biggest issue. What if you’re given notice to move out? What if the landlord puts the rent up? You may have more security with an Assured Shorthold Tenancy agreement but essentially, the balance is skewed in favour of the property owner, leaving you to react to events you may have no control over.

And talking of landlords, how do you know he will be motivated to look after the property? A good owner will make sure that repairs are completed promptly and with minimum inconvenience to tenants. But some are difficult to get in touch with and take ages to get anything done, or use a lettings agency.

Finally, there’s the opportunity cost of the rent that could have been profitably invested in a mortgage. Renting, by contrast, is ‘dead’ money to you, and only serves to line the landlord’s pockets. 

Should you buy your own home?

If you don’t like the idea of renting for the rest of your life, buying a property is the obvious answer. It’s a sensible investment that allows you to gain your independence. While it will take you several decades to pay off the mortgage, you will eventually own the property outright and be able to live there rent free. 

There are many schemes and offers that can help you towards home ownership, and your journey will involve a lot of budgeting and saving in order to get onto the property ladder. Consider using your existing Help To Buy ISA or open a Lifetime ISA to maximise your deposit savings, both of which offer a 25% bonus towards a deposit for a home.

Other ways to save money for a deposit could include

  • Moving in with family temporarily to save money, or taking in a lodger
  • Reviewing your spending and select cheaper options for big ticket items (holidays, cars etc)
  • Setting up a direct debit into a savings account
  • Asking for a contribution from parents or other relatives

The upfront cost of buying a home may be daunting but once your mortgage is in place, you may find that the monthly payments are cheaper than paying rent. For a clear idea of how much you may be able to borrow, and to guide your through the entire application process, a mortgage adviser should be your first port of call. Mortgages are typically arranged for terms of 20-35 years, and you can make overpayments to pay it off earlier.

To increase your chances of obtaining a mortgage you could also

  • Pay off any debts and overdrafts, and ensure all regular payments are made on time
  • Apply for a notice of disassociation from anyone you’ve been financially linked to in the past
  • Check your credit rating with the main credit reference agencies and ensure there are no errors

Buying your own home is a big financial commitment. Along with the monthly mortgage payments, you’ll be paying home insurance, council tax, utility bills and upkeep. For leasehold properties (mostly flats), there’ll be service charges and ground rent to pay too. What’s more, unless you have a fixed interest mortgage, your payments could rise with interest rate changes. 

That said, while there’s no guarantee that the value of your property is going to rise over the years, recent history has shown that bricks and mortar are still one of the safest long-term investment vehicles you can choose.

Getting on the property ladder is just that – buy a property of your own when the time is right for you and upgrade to a bigger place or a property in a more desirable area whenever you are financially able, until you have found your forever home.


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