The Stamp Duty Holiday has been a significant success and has revitalised the housing industry after many months of decline and inactivity following the onset of the coronavirus pandemic.
However, while house prices are now over 7% higher than they were at this time last year, there remains a degree of uncertainty in the market. Many potential homeowners and industry analysts are on the fence over whether these prices will continue to rise, as well as being mindful of the very real prospect of mass unemployment becoming worse in the UK as job stability continues to falter.
If you’ve yet to get on the property ladder, right now could be both the best AND worst time to buy a property in the UK.
To help make your decision process that little bit easier, Residential People have compiled a simple, and easy-to-follow guide of the current advantages and disadvantages of buying a property in the UK.
The Advantages of Buying
If you’re financially able to purchase a property in the UK, you should know that there are many advantages of owning your own home, that you won’t be able to get from renting; including:
Larger Homes for Less
One of the major benefits of buying a property in the current climate is the aforementioned stamp duty holiday that will allow you to purchase a property of up to £500,000 without having to pay stamp duty. As a result of the stamp duty holiday and the savings to be had, many home seekers are using this opportunity to buy a larger, or-perhaps their dream home.
Buying can be cheaper than renting
More often than not, it works out considerably more cost-effective to buy a home as opposed to renting, especially if you wish to stay in the same property for a considerable amount of time.
On average, paying your mortgage monthly will work out comparatively cheaper than it would cost to pay the rent for an equivalently sized home. Typically, mortgages in the UK operate on a maximum of 85 – 90% loan to value (LTV) ratio, which means that you’ll only need to provide a 15 – 10% deposit (alongside other additional fees) based upon the value of the property. In addition, many mortgages offer a fixed-rate period of interest (typically a minimum of 2 years) whereby you’ll be paying back your mortgage lender a significantly lower percentage of interest on the remaining mortgage value for a select period of time.
Furthermore, once you finally clear the mortgage, the property will be entirely yours, with no other mandatory monthly payments that you’ll need to uphold.
Your home. Your rules
Unlike renting, buying your very own home gives you greater flexibility and control over what you can and can’t do in your home as well as any changes you wish to make to the property.
If you’re an animal lover, it can be an absolute pain to find a landlord who is willing to accept your rental application. However, as a homeowner, providing there are no peculiar clauses from your mortgage lender, you’ll be able to have your pets freely roam your home.
While you will in virtually all cases, be allowed to repaint your home in any colour that you wish; buying a property will also allow you to make more significant renovations and redesigns to the house. So, providing you can secure the required planning permission from the local council or the lease/landholder, you could extend your home and add significant value to the property by installing a new kitchen and other home improvements
Earn additional income
While renting your home (that you’re also living in) to strangers is ill-advised during the pandemic; buying a property in normal circumstances does give you the potential to rent your home and earn additional income.
Providing you can gain the approval of your mortgage lender, renting out your home can result in you earning additional income and potentially paying off your mortgage faster.
An investment for the future
As mentioned earlier, house prices in the UK are currently experiencing a surge. As such, those who bought their homes under previous market conditions, could potentially be sitting (living?) on an asset that they could sell for a profit.
Peace of Mind
If there’s one thing that COVID-19 has taught us, it is that we should not take life for granted. While you may be physically fit and have no underlying health issues that could make you a potential COVID-19 victim, owning a property can potentially be a beneficial asset that you can pass onto your next of kin.
Additionally, as a homeowner, you can boost your pension and retirement package by releasing the equity in your home when you retire, giving you more money to enjoy your later years.
The Disadvantages of Buying
While many may look at buying a home as a way save on paying potentially extortionate rent and avoiding being at the mercy of third-party landlords, there are are a few potential disadvantages to consider when buying a property.
To help you decide whether you should rent or buy a house, we have listed some of the disadvantages facing potential first-time buyers.
Understanding the true cost
Unfortunately, there are a lot more costs involved when buying a property than the price you see on property websites. While the current stamp duty holiday does remove some of the associated costs with buying a home, you still should take into consideration the cost of conveyancing and legal fees, as well as mortgage fees and more.
Additionally, one of the major stumbling blocks for a lot of first-time buyers is the inability to obtain the level of deposit required to purchase their desired property.
While 90% LTV mortgages do exist, the government themselves are pushing for more 95% LTV mortgages (meaning only 5% deposit required) as part of their ‘Generation Buy’ scheme.
However, it’s important to consider that banks are becoming increasingly wary of signing high LTV mortgages – especially during the current pandemic -as these can quickly turn into negative equity resulting in a loss of money for lenders should the economy significantly worsen in the near future. As such, you may find that obtaining a property with only a 5% or even 15% deposit could become increasingly more challenging as the stamp duty holiday rush continues.
Maintenance is your responsibility
One of the main benefits of renting a home as opposed to buying is that much of the maintenance work needed to be done on the unit is the responsibility of the landlord or council/housing association.
Unfortunately, when you buy your own home you’re fully responsible for any maintenance work that needs to be carried out on the property. As such, depending on the age, type and sometimes the location of the property, you might end up having to pay a considerable amount of money to have the issues repaired.
Failure to address any issues that need repairing could have serious repercussions to the value of your home in the future, as well as potential legal issues if the problem affects your neighbours or the general public.
Renting could be cheaper
In the short term at least, renting a property in the UK could be cheaper than buying due to the initial deposit and other associated fees.
Moving beyond upfront costs, renting a property is a fantastic way to learn more about an area than you possibly could from just a short weekend stay.
If you’re interested in a particular area but have never previously visited or spent significant time there, renting could be the solution. When renting, you can take more time to see different aspects of an unfamiliar area, including the commute to your workplace and other facets of daily life. Renting a property, therefore, can offer you a reasonably cost-effective way to experience life in another part of the UK, without a potentially expensive and ill-advised long-term purchase.
A longterm commitment
While you’re free to sell your home at any time, buying a property should not be seen as a short-term investment, nor something that you do to ‘experience’ living in a particular area.
It’s important to stress that while potentially lucrative, house-flipping (the art of buying and selling property within quick succession) is a skill that requires a vast amount of market research and property knowledge to be done successfully.
Selling your home is also not always a quick and painless procedure, and in some cases, properties can sit on the market for several weeks, months and even years before a buyer can be found. As such, it’s vitally important to be confident that the property and the area are right for you, as you may be stuck with the home for a considerably long time if you overlook an aspect at the time of purchase.
When buying a home, you must be aware that house prices can (often do) fall just as readily as they rise; therefore, you might potentially end up owning a home that depreciates due to market conditions outside of your control.
Lastly, it’s essential to consider that most mortgages on properties are typically 20-25 years, and a lot can change within your life in this time. Any changes (either positively or negatively) in your financial or relationship circumstances could drastically impact your ability to maintain mortgage repayments and the upkeep of your property. For instance, should you get divorced, you may legally be required to sell the property. Alternately, if you were made redundant, you would still be liable to continue to pay for your mortgage regardless of your current financial instability.