The cost of buying a house is huge but it could save you cash in the long-run
Buying your own home may seem like a lifetime away but over your lifetime it could save you hundreds of thousands of pounds.
Research by Barclays found that owning your own home rather than renting it will save you £194,000 over a 50-year period a person's estimated adult lifetime from buying a home in their early 30s.
And crucially, this figure doesn't even account for the value of the property you will own at the end of it.
In the South West the average house price is £218,354, according to the latest Land Registry figures with the average price in Bristol £205,225, North Somerset £212,306 and South Gloucestershire £206,713.
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But the National Association of Estate Agents says action is needed by the government to get the market moving.
Mark Hayward, President of NAEA, said: “Assisting those at the start of the ladder could help to generate upward momentum in the market.”
He said the latest figures from the Council of Mortgage Lenders has shown a 24 per cent rise in gross mortgage lending in May but it is likely lending levels will continue to fluctuate until an adequate mechanism to support the first time buyer market is introduced and ‘restrictive lending policies are curtailed’.
Richard Copus, South West spokesman for the NAEA, said buying a house does save cash in the long term.
“When you are renting a house you still have to pay council tax, you still have got your utilities. The rent is really what you would be paying as a mortgage but with a mortgage you pay it off over time.
“Over the last few years interest rates are historically low so a mortgage is much cheaper than renting. It has got to be over a long period of time as if you buy and sell at the wrong time you can lose a lot of money.”
The research by Barclays found that even though mortgage repayments, property maintenance, and other costs associated with owning a home total £429,000 over 50 years, renting a similar property over the same period would cost more at £623,000, according to the bank's number-crunching.
On the back of this research, the Woolwich – the mortgage lending arm of Barclays – announced the launch of its Helpful Start scheme. This allows first-time buyers, and even those trading up the property ladder, to use their parents' salaries to boost their own affordability when buying a property.
Last year in Bristol a unique scheme was launched by the city council and a major high street bank to help first-time buyers.
The city council has set aside a pot of £2m for the scheme which will see it act as a guarantor for a 20 per cent slice of mortgages up to £142,500 which means that people signed up will only have to find a deposit of five per cent and Lloyds will be able to offer mortgages at highly competitive rates. And like all schemes conditions do apply.
However, whether you have the means or inclination to buy a property more often comes down to the here and now. Here we look at the more general pros and cons of buying your own home versus paying a landlord to live in one.
Pros of buying your own home:
As Barclays' research clearly shows, being a homeowner is cheaper in the long term – but, providing you can get on the ladder in the first place, home ownership could cost less in the short term too.
The cost of renting has been steadily climbing as more people struggle to get a footing on the property ladder due to stricter criteria from mortgage lenders, including big deposits and exemplary credit ratings. With rental properties in high demand, it's natural for the nation's landlords to hike up costs.
According to the latest rental property index from LSL Property Services, average monthly rents in England and Wales hit £712 in May, which was 0.4% higher than April and 2.3% up on last year.
Those living in the capital faced record high rents of £1,038 – a month-on-month increase of 0.6% in May and a staggering 4.2% rise on this time last year.
But while rents have been steadily climbing northwards, mortgage costs, in the main, have remained at record lows. However, to access the very best rates you will need to be armed with a hefty deposit – difficult when you are forking out so much in rent.
For example, in return for a 40% down payment, HSBC is offering a rate of 2.64% fixed for two years. So for the same average rent (or thereabouts) of £729, you could land yourself a 25-year repayment mortgage of £160,000. The mortgage does come with a high arrangement fee, though, of £1,999.
Even if you can only raise a 10% deposit, rates are still keen. First Direct is offering 4.19% fixed for two years with a fee of £999. For the same £700 a month, this means you could service a £130,000 repayment mortgage taken over 25 years.
You benefit from house price inflation...
Of course, the main benefit of owning your own home is that, in the long term, property prices tend to rise, which generates 'equity' (the term for the difference between your mortgage debt and current property value). According to Halifax, house prices over the last 25 years have risen by a staggering 382%.
Whether you use this equity to trade up the ladder or you want to sell, bank the cash and travel around the world or, it's a nice nest egg. In fact for many people, it's their only nest egg.
You can adapt your home to suit your own taste...
Owning the roof over your head is likely to bring considerable comfort in the latter years of your life – but there are bonuses of homeownership in the shorter-term too. When you are renting your home, your Assured Shorthold Tenancy Agreement (AST), which set down the terms and conditions of your tenancy, will usually state that you cannot make any changes to the property – and it's pretty restrictive too. This is an extract of typical contract:
The tenant cannot:
- Remove any fixtures or fittings from the Property without the consent of the Landlord
- Bring a waterbed into the Property
- Redecorate without the consent of the Landlord
- Make an improvement or alteration to the Property without the written consent of the Landlord (this includes the erection of a satellite dish or television aerial and the carrying out of external redecoration)
- Spend money on repairs without the Landlord's written permission.
When you own your own property, however, you can of course make any changes you like to the inside and – providing you have planning permission or listed building consent – to the outside too. This could even extend to converting the loft or adding another bedroom, which could come in very useful in future years.
You can't be 'kicked out' of your own home...
The AST will typically state that both landlord and tenant need to honour the agreement for a minimum amount of time – usually 12 months. If you want to leave after this time, both parties will then be required to give notice – two calendar months is typical. The contract may also come with a break clause of, say six months, at which point you can also opt to hand in your notice.
But while this might be great in terms of your flexibility, it also means that the landlord can pull the rug from under your feet at any time – although longer term contracts are also available.
Nevertheless, renting a home rather than buying one means you are always at risk of the landlord asking for it back, which could easily cause untimely disruption and expense.
Cons of buying your own home
However, owning your home isn't always a picnic either. There could be some downsides too.
You will be tied into a long-term commitment...
You may have an AST with your landlord, but any contract with your mortgage lender is certain to be a longer-term arrangement. Mortgages are typically calculated over a 25-year period (although it is possible to take deals for a longer or shorter term that this).
Nevertheless, as soon as you sign on the dotted line, this debt will need to be paid every month and on time – regardless of your financial circumstances.
When there are two names on the mortgage agreement, you will be jointly and severally liable for the loan. This means that, even if one partner packs up and leaves without paying their 'share' of the mortgage payments, the other will be chased by the lender for 100% of the debt.
You should also ask yourself how you would pay the mortgage if you were no longer able to work due to falling sick, having an accident or losing your job. If you don't think you could meet your commitments, look at getting an income protection policy.
You will have to pay for your own repairs...
The other downside to owning your own home, of course, is that if anything goes wrong, from a burst pipe to a broken window, the responsibility – and the cost – lies firmly at your door. You should always make sure you are fully covered by appropriate home insurance. You can shop around for the best deals on offer at MoneySupermaket's home insurance channel.