The Argument for Renting
The average age of a first-time home buyer in the UK is 35, according to a 2012 survey conducted by Post Office Mortgages. This is up from an average of 28 just a decade ago. Although conventional financial wisdom dictates that it’s better to own than rent, for many 20-somethings this is no longer the case. Owning property helps you build equity, with each mortgage payment going towards your own asset. Yet for many young people, there are numerous benefits associated with staying out of the housing market and renting a home instead.
Whether you rent or buy, moving isn’t cheap. When you move into a new rental property, you can expect to pay up to three months of rent up front, along with a deposit and agency fees. Yet these fees are magnified for home buyers. Real estate closing costs can include arrangement fees, legal fees, and stamp duty, without taking into account any home improvement costs you’ll need before moving in. As a homeowner, you are responsible for maintenance and repairs, without any landlord to fall back on. Renters don’t have to worry about unexpected maintenance fees, such as the cost of replacing a faulty boiler in the winter.
To purchase a home, you’ll also need to have a significant amount of money in savings to cover the cost of a down payment. Although in the past lenders were often willing to work with high loan-to-value mortgages, the credit crunch has led to tighter regulations. Expect to pay at least 20% of the home’s value up front.
A Different Type of Security
One of the arguments frequently given for buying a home is that it provides a greater level of security. Yet if you lose your job or find it difficult to meet your mortgage obligations, you could end up losing the home as well. When staying in houses for rent, you aren’t locked into any long-term obligations. Should your financial circumstances change, you have the security that comes with being able to find a more affordable home. Most rental contracts are draw up for six months at a time, with some available on a month to month basis. This gives renters a safety net should they need to find somewhere cheaper without much notice.
Flexibility and Freedom
Many young people switch jobs as they are establishing their careers. As you make the move from university into your first entry-level position, you may not want to stay in that particular location for the next several decades. Having the freedom to move around as you follow your initial career path is one of the major benefits of renting. You can also take a gap year off to travel, which is slightly more difficult to do when you are tied to a mortgage at home. The time frame for selling a home is unpredictable in today’s market. It can take anywhere from a month to over a year, which leaves little room for spontaneity.
There are certainly advantages to owning a home, particularly if you feel settled in one place and are in a stable financial situation. Yet for many young adults, the advantages to renting far outweigh the responsibility that comes with owning a home in today’s unsteady housing market. With the array of affordable rental properties available, it may be worth postponing ownership a few more years.