Getting your foot on the first rung of the property ladder is getting harder. Spiralling prices, and the difficulty of saving for a deposit are putting some people off the idea of buying altogether. But make no mistake about the economic reality. Buying is cheaper than renting and getting on the property ladder is the only way to go if you want to save money on living costs.
These days, renting does not mean depressing conversions in unfashionable suburbs. Buy-to-let investors have snapped up flats in city centre blocks with gyms, concierges and other extras so being a tenant can offer a choice of locations and an enviable lifestyle.
It is flexible too. If a change of career or relationship dictates it, it’s easy to up sticks and move to another rental, at the other end of the country if you wish.
But it comes at a considerable cost. Figures from Santander indicate that ‘lifetime renters’ who never manage to climb on to the property ladder will hand over about £296,000 to private landlords during their lives.
Getting on the property ladder is likely to be the best solution if you want financial security. Long-term tenants came when debt charities warned that those with poor pensions may struggle to pay their rents in retirement – while older owner-occupiers should see their outgoings fall as they finally clear their mortgages. They have an appreciating asset, which can supplement retirement income if they choose to downsize.
There are short term savings too. Average monthly rent in the UK is currently £995 per household compared to monthly repayments of £805 for first time buyers according to Santander. So a typical tenant would save around £190 a month by becoming a homeowner.
Even in London, where property prices seem to have left economic reality behind, first time buyers would see themselves £179 better off each month. The savings mount up. Homeowners have an extra £2,250 in their bank account each year.
Buying a property is a big financial commitment – the largest most of us will ever make – and there are upfront costs to consider, but over the long-term the financial benefits cannot be ignored. And with prices forecast to rise still higher delaying may only make things more expensive.
So what’s the problem?
So why does renting remain popular? One of the biggest problems is getting a deposit. According to the Halifax, the average price paid by first time buyers across the UK is now £190,180. That means deposits of £33,0000 are becoming essential, and those who can put down more are advised to do so – because a higher deposit can often help secure much more favourable mortgage terms.
Raising that kind of sum can take years. Current low rates of interest make traditional saving solutions – from banks and building societies – look very unrewarding. Even couples who can both call on the bank of Mum and Dad as well as their own resources can find saving for a deposit all but impossible.
There are solutions that can help you build up a decent deposit. The government Help to Buy scheme provides an interest free loan, while the Help to buy ISAs may be a way of building up savings with a generous contribution from the taxman. You might also want to consider the new Lifetime ISA, which has an option for first time buyers
Knowing what the options are, and how they can fit your own circumstances is essential, and expert advice could help avoid expensive mistakes. Finding the right mortgage, and arranging the necessary insurance protection all mean that you need expert independent advice. To get the advice you need please contact us today.
Remember your home may be at risk if you do not keep up with the repayments for a
loan or mortgage secured on your property.