It seems there is always bad news about millennials and younger people wanting to be homeowners.
It’s taking longer than ever to save up down payments or deposits. Home loans are out of reach for many. The average age of first time homebuyers is getting higher and higher.
But what is the fuss all about?
Is it really necessary for everybody to try and buy their own home?
The trend is towards renting. A quarter of the 100 largest US cities moved from homeowner majority to renter majority in the 10 years from 2006 to 2016 (source: US Census).
All across the world, renting is growing at the expense of homeownership. By 2021, according to a report by real estate agency Knight Frank, the UK will have: 14.3 million homeowners, 5.7 million private renters and 4.3 million public or social renters.
What’s wrong with being a responsibility-lite renter with plenty of flexibility? Is being a renter so bad, and being a homeowner so good?
How do the two match-up, renting and homeownership?
1. Ease and simplicity
Renting wins hands down on the easier-to-do scale. To rent, you need your monthly rent and your references and credit record have to be passable.
To buy you are going to need a whole lot more, including:
- Down payment or deposit, ideally at least 20% of the purchase price to get the best mortgage rates
- Very good, not just “passable” credit record
- The ability to afford a home loan for the balance of purchase price after you pay your down payment
- Money every month for your loan repayments, bills and (if you buy an apartment) management fees.
2. If you fall on hard times
If you’re renting and have a money problem, you can tell your landlord you’re moving out even though your tenancy still has months to run. They are not going to be happy, but generally it is not going to be cost-effective for them to sue you.
In the worse case scenario you may be able to go back to your parents or crash on the sofa of a friend.
If you’re a homeowner and get into money difficulties, walking away is unlikely to be a great option.
Failure to pay your monthly repayments is going to lead to mortgage arrears, and in the last resort you will be at risk of losing your home.
You could lose some or even all of the down payment or deposit you put down to buy and could end up homeless.
The responsibility of owning a home and the fact that there is so much to lose if things go wrong is one of the main reasons why many people shun the idea of homeownership.
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There was a time when for most people renting was noticeably cheaper than buying.
It makes sense for renting to be cheaper. Renters pay for accommodation they do not own and will not own no matter how many years they live there. Rent is “dead money”.
However, as average house prices have surged in almost every desirable location following the 2007-8 credit crisis, it is nowadays often cheaper to buy than rent – once a down payment can be raised.
The difficulty of raising a down payment is often the thing that puts off many homeowners from buying.
Many people want to buy, but they can’t afford to do so.
4. Long term benefits
When it comes to the longterm benefits of homeownership compared to renting, homeownership wins easily.
As a homeowner, you have the pride, freedom and power of ownership. You can do what you like with your home – re-design, style or decorate it as you wish.
You can make improvements – which are likely to add value.
Buying a house is effectively an investment. With the passage of time, its value is likely to increase, giving you a capital gain, profit or “equity”.
If you’re a renter, the only thing you are likely to get with the passage of time is a rent increase or two.
A homeowner can plan their future with reasonable certainty; a renter with a short tenancy has no such luxury.
4. The match-up
If you want your “accommodation needs” to be easily obtained and simple to handle, with minimum responsibility and risk and maximum freedom, choosing to be a renter is the way to go.
However, you should never forget that rent is “dead money”. For your money, you get a roof over your head for the length of your tenancy – but that is about all.
Renting is about looking after your housing needs today; owning is about looking after your housing needs today and tomorrow.
Homeownership gives you:
- Accommodation you can stay at as long as you like
- A degree of certainty when planning your future
- A property which is ultimately an asset
- A stable environment in which to bring up children
- A chance to add value to your asset by home improvements
- The likelihood of capital gains, profit or equity with the passage of time.
- A collateral against which you may be able to borrow money when you need it.
As the owner of your home, you have something tangible to pass on to your children or grandchildren in your will.
You also have an asset which you can draw on when you get to retirement.
Read more blogs for first time homebuyers here.
5. What is wrong with being a renter?
There is nothing “wrong” with being a renter. At certain stages in your life it may be the right option, the practical cost-effective option – the appropriate choice for you.
But in the longterm, for most people, it is not the best choice in terms of security or money.
If you need to rent – if there is no viable alternative – renting is the right thing to do. But if you can afford to buy or can put yourself in the position to buy, even if it will mean difficult short-term sacrifices, you would be unwise not to do so.
Do you want to become a homeowner but have experienced problems, difficulties or hurdles? Are you willing to share? Please leave your comments below.
Rebel Property Coach
My website is: www.rebelpropertycoach.com