You’ve got the deposit together, you’re ready for the responsibility and renting is expensive. The property ladder beckons. But is it the right time and what should you consider if you do go ahead? The answer is different for everyone.
First the big picture. A glance at the history of house prices suggests there isn’t really a bad time to buy. With a couple of rocky patches, average prices have risen steadily in the past 30 years.
Homeowners who were able to ride out falls in the early 90s and during the financial crisis of 2008-2009 ultimately made money even if they bought at the peak. But the past doesn’t show us the future.
House prices are rising more slowly nationally and are falling in some places. Some commentators think national prices are set for a fall even without the uncertainty of Brexit. Others disagree and argue prices will resume their upward trend once Brexit is out of the way.
Mortgage rates are also historically very low. They could fall further if the Bank of England cuts interest rates but many people are taking the chance to lock in cheap borrowing costs with fixed-rate deals. So that’s another positive.
No one knows where house prices or interest rates are going and most people buy their first home as soon as they have the money. But it’s worth bearing these things in mind when deciding whether to buy and how far to stretch yourself.
To rent or to buy?
Renting has become more expensive in recent years as incomes have failed to keep pace with rising rents. The average renter spends more than half their disposable income on rent with the figure far higher in London and other hotspots. (http://blog.landbay.co.uk/blog/2018/11/22/tenants-spend-a-third-of-their-pay-on-rent)
That’s a good reason to get a mortgage and start on the property ladder. But home ownership isn’t cheap. Faulty boilers, leaking roofs, insurance and wear and tear all cost money. So be realistic about these costs when deciding to buy.
It’s also important to think about your personal circumstances. How settled are you? This matters because buying a house is expensive. Legal, survey and estate agents’ fees, removals and other one-off costs can tot up to several thousand pounds.
Then there’s stamp duty. This tax on property purchases is cheaper for first-time buyers but costs mount when you move house. For example, first-timers would pay £5,000 to buy a property for £400,000 but the cost rises to £10,000 if you’re not a new purchaser.
All this means it’s best to be reasonably settled when you buy your first place. Unless you’re planning to add value by doing up and selling a tired property you might want to delay buying if you’re likely to relocate in the next year or two. With the cost of moving so high, it makes sense to plan for five years or more in your first place.
If you’re single then meeting a partner could be the trigger for a move if you set up home together. Combining your resources may let you buy a bigger place – maybe a house instead of a flat. Or you may be a couple who are first-time buyers.
Again, think ahead. Many couples buy their first property together based on their current lifestyle rather than what life will be like in a few years. A flat with funky bars and shops nearby may appeal now but children change everything. You may find yourselves heading to the suburbs for a bigger place with good schools nearby.
Most people enjoy owning their own property and it can be a good move financially. Whatever your circumstances, things are never quite the same once you’ve taken the plunge.
Photo - Christian Stahl