Buying a home is one of the major milestones in a person’s life that cements your transition into adulthood and independence. However, raising enough money to buy a property can seem like an impossible task for many families as inflation rates continue to soar while wages remain steady. What many people don’t realise is that buying a house can actually work out cheaper than renting. If you can manage to scrap together a down payment, you could actually end up better off financially once you move into your own property and cease handing over extortionate amounts of money in rent every month.
Renting Vs Buying A Home
According to Halifax, first-time buyers in the UK save an average of £1,300 per year compared to those that rent their home privately. The welcome news for homeowners is due to a historically low base rate of 0.5% from the Bank of England that has held steady for over five years. Staggeringly low mortgage rates have also helped take some of the pressure off of homeowners, and experts predict that the recent trend will continue into the coming year. HSBC currently offers a five year fixed-rate mortgage at only 2.19%, and other lenders are preparing to throw their hat in the ring by lowering their own interest rates. If you need more help deciding on what type of mortgage is right for you, this article at Countrywide Scotland offers a detailed breakdown of the different types of mortgages available.
Although a monthly mortgage fee might work out cheaper than rent, there are a few hidden costs that many first-time buyers are unaware of until they actually go through the process of purchasing their first home. As well as a sizable down payment, buyers need to come up with legal fees, estate agent commissions, the cost of a home survey, and stamp duty. As stamp duty alone can cost several thousand pounds, these hidden extras can really add to the cost of buying a home. Property owners are also solely responsible for paying to maintain their home, and will have to cover expensive repairs such as a boiler breakdown or a leaking roof from their own pocket.
Saving For a Down Payment
If you are determined to get your foot on the property ladder, then you will need to save for a down payment. Although there are some lenders that will offer you a mortgage with a down payment of only 5% of the total value of a property, it is not advisable to take out this type of loan. Buyers that need to borrow more than 90% of the value of their home often have to accept mortgages with high interest rates that could increase even further after a few years. A down payment of at least 20% of the total value of the property will usually get you access to some of the cheapest deals on the market. An independent savings account is the best way to start putting away a large amount of money as your savings will start to accumulate interest while you continue adding to them.
The UK government offers several schemes that are designed to help first-time buyers purchase their first home. Help-to-buy equity loans are available for up to 20% of the purchase price of a new home. Shared ownership schemes help tenants living in council houses purchase a percentage of their home while paying rent on the remaining share. For those that have difficulty raising a down payment, a help-to-buy mortgage guarantee lets buyers purchase a house with an initial payment of just 5% of their home’s value. Each government scheme has certain criteria that applicants must meet, and you can learn more about each scheme by visiting the GOV.UK website.
Your home is most likely the biggest purchase you will ever make in your life, so seeking out the best mortgage on the market will help keep your monthly repayments as low as possible. As well as leaving you better off financially, buying your home lets you increase your net worth. With each mortgage payment, you are building equity in your home that could be used as a retirement nest egg. It is important to make your monthly mortgage payments on time or you could be at risk of losing your home. Talk to a financial advisor if you are worried about meeting your monthly repayments or are struggling with unpaid debt.
Molly Howarth works as part of a mortgage brokerage team. She likes to share her property investment ideas with an online audience and is a regular writer for a number of consumer and lifestyle websites.