Deciding whether to stay in the rental market or buy is a choice that many people struggle with. Purchasing a home is one of the largest financial decisions you will ever make, so it stands to reason why so many are apprehensive about getting it right. Weighing up the pros and cons will help you make up your mind and know what the right choice is for your current situation.
So what are benefits of getting your foot in the door?
- The sooner you get into the market, the sooner you can pay off your mortgage and have a home you can call yours. Once the mortgage is paid off, the home is yours for as long as you want it.
- You will benefit if your home increases in value. Over the long-term property will appreciate in value, creating equity that can be used to help to buy a bigger home or fund your retirement.
- Decisions regarding the home are yours to make. You don’t have to ask a landlord’s permission to spend money improving the home. Also, spending money on the home will help increase its value, which will benefit you directly.
- Depending on the situation, it can be cheaper to pay a mortgage than the rent.
While the benefits of owning a home are appealing, there are cons to being a homeowner.
- A property purchase should be viewed as a long-term investment. It is a big commitment, so you need to be sure you are ready and can afford it for the term of the
- If the interest rate goes up – so do your mortgage repayments. There needs to be some financial cushioning in the budget if this happens.
- As the owner, you are responsible for all maintenance costs. Ideally, you should have a contingency fund saved up to assist with emergencies such as a broken boiler.
- There is also the matter of additional services charges when purchasing a flat, which you won’t incur if you are just renting.
- Depending on the market, you may have to hold onto the property for longer than you initially intended to.
- There is less flexibility when you own a home. Moving involves possibly selling, which means more money and planning.
When considering whether purchasing a home is the right choice, a major factor is affordability. Does buying a home make financial sense for you in your current situation? It is important to remember that there is more to being able to afford a home than paying the mortgage. Here are some other costs you will need to factor in during the home-buying process:
- A deposit – on average first-time buyers put down a deposit of between 10% and 20% when buying their first property. If you opt to use a Help to Buy or shared equity scheme, the deposit requirements will typically be around 5% with the government or developer loaning you the remaining 15%.
- Survey costs – a survey will let you know of any possible repair costs you can expect to pay in the future. It will give you an idea of how much you will need to invest in the home after you have bought it. Surveys vary in price from around £500 to £1,500 depending on the type of survey and the amount of detail you require.
- Stamp Duty – any residential property or land purchased in England, Wales and Northern Ireland that costs more than £125,000 (£40,000 on a second home) will incur a Stamp Duty. The amount of Stamp Duty liable will be based on a sliding scale depended on the value paid for the property over the £125,000 threshold.
- Legal costs – there are a few ways in which solicitors charge their fees, such as a fixed fee, an hourly rate, and a percentage of the property price.
- Ongoing monthly costs – Council tax, gas, electricity, phone line, etc.
If your goal is to ultimately ditch the rental market and own a home, but you can’t afford it at the moment – save, save, save. If possible, find ways to curb your spending and set up a savings plan that will help you reach your goal. Depending on your career and financial situation, there are also help to buy schemes that will assist buyers to purchase their first home.0