You may have just graduated from university or got your first job. Or you may simply have been living at home for longer than you had originally planned and are keen to put down roots in a place that you can call your own. Moving out into your first house is the first major step of adulthood. But millions of young Britons are finding it harder and harder to take that step because of rising prices, stagnating wages and the ongoing shortage in the country’s housing stock.
For the majority of people under the age of 25, renting has traditionally been the first step to independence. Letting a house from a landlord means that you can move out of home without having to worry about the responsibilities that come with actually owning your own house. But hundreds of thousands of first-time buyers continue to climb onto the property ladder each year thanks to record low interest rates and the allure of starting to make an investment in bricks and mortar.
So, if you are thinking of moving out, what is the best choice for you? To rent or to buy?
Which is the right decision?
On the face of it, it is a simple choice: do you want to live in a home secure in the knowledge that it belongs to you and nobody – except the mortgage provider – can take it away? Or are you happy to live in a property which is owned by somebody else and the degree of uncertainty that goes along with that?
When you buy your own home you are free to make improvements to it that suit your lifestyle subject to the necessary planning consents. If you decide to rent, then any changes will be at the discretion of your landlord and that may include something as minor as repainting a door or putting up some bookshelves. Many landlords place other restrictions on a tenancy including not allowing cats or dogs or even preventing their tenants from having children in the house. If you are thinking of starting a family, then you might find that renting is not an option.
On the plus side, renting gives you much greater freedom than buying – you’ll be able move on as soon as the minimum tenancy period runs out. If you are a homeowner, then it may take many months to sell your home after you decide to put it on the market during which time you will have to continue to pay your mortgage. If you own your home then you are responsible for its upkeep. If you rent then your landlord must resolve property problems for you, most probably at their expense.
Having a mortgage limits your options
When you sign a mortgage agreement to buy your first house, you are tying yourself in to the most important financial relationship of your life. You’ll be making payments for a minimum of 25 years and you won’t own your house entirely until the balance and interest are completely repaid.
Most mortgage lenders will also want you to put down a 10 per cent deposit before they will offer you a loan. If you have a poor financial record or are in less-than-secure employment, a lender may ask you to make a much larger deposit – sometimes as high as 25 per cent. If you don’t have the money for a deposit and can’t borrow it from family or another financial institution, then renting is probably your best choice. However, if you use the Government’s Help to Buy scheme, then you may only have to find a 5 per cent deposit.
If you are in a rented house and you lose your job or your circumstances change in another way then, provided you are not still in the minimum tenancy period, you are free to move out. Buying a house in a desirable area might be unaffordable, but renting there might be within your price range.
But renting is often referred to as “throwing money away” because you are not building an asset which you can later sell at a profit or to finance retirement. This is probably the main reason why most people still aspire to own their own home.
Finding the money
If you become a tenant, then you will only have to put up a small deposit – usually the equivalent of a month and half’s rental. That will mean that you will have more money to spend on a new car, a holiday or furniture.
But if you do decide to buy, then you’ll have to find a way of saving for or borrowing a deposit – perhaps £20,000 or £30,000 depending on average prices in the area where you choose to settle. Once you’ve got the deposit, you’ll need to shop around for the best mortgage deal for your circumstances.
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