Should you buy your home in cash?
no…I even did the maths…
For those of you more financially savvy than I out there, you’ll probably roll your eyes at the question I posed in the title.
But for those among us on a low income, we might be fastidiously saving (or trying to save) the 10% we require for the deposit on our house. It’s stressful, but it’s the goal. It’s what society (in the Uk, anyway), our friends, and our parents decree is the only way to become a proper adult.
Then we’ll finally be financially secure, we tell ourselves, tucked under the covers late at night.
Then, when we have the keys to a home we own clenched in our sweaty little paw, will we be grownups, with a mortgage and stuff.
But it’s not as easy as that.
Because you don’t own your home when you first buy it. You own 10% (or whatever) of it. The bank owns the rest. And JESUS it’ll charge a lot of interest for the privilege of buying it back from them.
We’re currently living in a time of low-ish mortgage rates, so we’re constantly told to get saving for that deposit.
My parents were OBSESSED with the idea of me buying a house. They’re less bothered now, and we’ll get into why a bit later.
So why? Why are we a nation intent on taking a massive fucking debt, whilst shaming those who take out consumer debt?
Reasons it’s great to own your own home
- It’s yours. If you want to knock holes in the walls, live in filth, and allow your pets to eat your skirting boards, no one will tell you off. Well, my mum will, but that’s probably for the best. And she’ll only tell me off. She doesn’t care about you.
- No one can decide to unceremoniously chuck you out (unless your relationship breaks down).
- Rent is THROWING MONEY AWAY. This phrase is bandied around a lot, so it must be true.
- You don’t have to adhere to your landlord’s schedule when it comes to getting things fixed.
- Speaking of landlords, you’re no longer entered into that fun lottery that determines whether or not your landlord will be a dick. You’re your landlord. You’re used to your dickishness.
There’s probably more. I’ve never owned my own home, so I’ve never experienced the feeling of accomplishment that comes with being handed over the keys, but I bet it’s pretty great.
Reasons it’s great to rent
- Houses are expensive to run. My parents have just spent thousands having a new septic tank installed because their old one will become illegal in January 2020.
- Buying a house is stressful af. My brother, his girlfriend, kid and puppy have been waiting to move for months, but a series of increasingly bizarre events (none of them anything to do with my brother and his family) and a crap solicitor keep slowing the process down. These two issues have caused my parents to back down on the house buying front. It’s quite the relief, I must say.
- Someone else foots the bill when something goes wrong. I’ve never even THOUGHT about the septic tank. I don’t even know if I have one. Probs not.
- You can move whenever you like. If you buy, and, God forbid, your house floods, you may be stuck there forever, or lose a lot of money if you have to sell cheap. Want to move to France next year? Go for it (pre-Brexit).
Renting is NOT throwing money away
I fucking HATE it when people say that.
It’s like saying, why eat food when it’s just going to end up in the toilet (sorry, but I couldn’t think of another comparison/didn’t want to)? IT’S FUCKING USEFUL THOUGH.
Rent pays for SOMEWHERE TO LIVE. It’s not wasted money unless you’re paying an exorbital amount when you could be happy somewhere cheaper.
If you’re on a tight budget with no spending money and you’re stressed because you can’t save for a deposit and you’re ‘throwing money away’ renting, stop worrying about that. See if you can increase your income, sure, and make sure you’ve got some sort of budget, but buying a house is NOT the be-all and end-all.
So, what’s my plan?
Ok, I don’t have £200,000, which is the amount you need to buy a nice (small) house in my area. That’s not particularly expensive for the UK, but it is for the north. If I saved up that much I could buy something incredible in Sheffield, a city I wouldn’t mind moving to.
But I’m on a low income — not minimum wage, but, you know, low. A bank would offer me about £90,000s worth of house in a mortgage. That won’t buy me ANYTHING around where I live, and certainly nothing better than where I am now.
If you’re the kind of person that would happily live in a tiny one-bedroom flat because it’s YOURS and you OWN IT, then good for you, and I’m jealous, but I love my house now. And it’s cheap. It would suck to move somewhere worse, even if I owned it. I’ve actually been a bit spoiled, because my house is RARE. How many two bedroomed house do you get with a decent-sized garden (front and back) and a drive? NOT MANY, at least in this corner of the Yorkshire Dales.
So I’m saving up the £200,000, even if it takes me years (and it will take me years. I don’t why I added the ‘even if’. It definitely will).
Besides, if a cheap dream home does comes up, I’d hopefullyhave the money for a deposit. I’m not saying I’d never consider a mortgage, but it’s not the only way. We’re all about options here.
Besides, I have a few things in my favour:
- I have a nice landlord
- I have a nice house with a garden
- My rent is cheap — ok, there are very few rental properties in the small Yorkshire market town that I live in because most people own their homes. It’s a rich area, full of old money. If the demand for rentals is low, so, it would seem, is the rent. Also, my house is tiny. But there’s only two of us and a bunny, and we have no plans for kids.
What could I end up saving?
Bear in mind here, that I have cheap rent. Like, considerably cheaper than a mortgage payment on a nice house. Like, £200 a month cheaper.
If the current mortgage rate remains the same, I could save about £60,000 of interest payments if I saved up and bought the house (that’s the maths I did — assuming a 2.4% interest rate, and a mortgage of £180,000, you’d end up paying back nearly £240,000.
If my current rent stays about the same, and I can save up the money in a decade (doable), I’d have paid only a bit more in rent than interest. A bit being about £600.
I’m sure there are lots of other benefits to homeownership that more qualified financial people than I could come up with, but I’m just saying that it’s worth thinking about.
It’s not just the interest too — what about the costs of maintaining your home? It doesn’t always come cheap, especially if you buy an older home and need to sort out the insulation, the boiler, or whatever. It’s not just the deposit you have to save up for, you need to think about closing costs, legal fees, and all that stuff. As well as moving costs and the price of new curtains etc etc etc.
Seriously, I hate moving. What a kerfuffle.
Best case scenario for me would be for my landlord to sell me my current property in a decade or so (unless I become rich beyond my wildest dreams of course). The house is TINY but there’s scope to expand (the garden’s pretty big). There’s off-street parking and it’s close to work. Also, we went into the loft yesterday and at one point it’s been used as a bedroom, so there’s definite scope to have it made into a home office/yoga studio for me.
Worst case scenario is that they decide to sell, like now. That’s the one real downside to renting — your landlord may decide to sell the house you’re in and you have to move. It’s the reason my parents were so intent on me buying — they couldn’t imagine not having the security of owning your own home.
To wrap it up…
I’m not 100% POSITIVE that I’m going to save up and buy my first house in cash. That’s just my goal. And it’s a good one too — current forecasts suggest it’ll take about 20 years for me to save up £200,000, and I’m determined to, like, half it, so I’ve become really frugal.
And those of you in the UK, yes, I do have a help to buy ISA. I was very ill (well not very ill, but I had my first ever sick day from work) and quite delirious. I opened Chrome to check if I was about to die, and an article popped up in the little news feed. Martin Lewis was URGING those people between 16 and 39 to open a help to buy ISA BEFORE IT’S TOO LATE.
I thought I wasn’t eligible for the ISA, because I’d already paid into one that tax year, but some banks allowed you to transfer.
So now I have one, even though I’m saving up for the whole house. That’s cool — it still has a 2.58% interest rate even if I don’t take advantage of the bonus (which I might). And I’m only putting some money in there — the exact amount which would give me the full bonus if I used it in ten years — and I keep other savings elsewhere.
I’m going to end here because I’m rambling. Start saving for your house. Or rent forever. It’s all fine by me.