This is literally the riskiest advise I will give you my younger self. I believe that the single most important driving factor that drives people to buy home is insecurity. These insecurities exists in mainly three forms
- Financial — “I don’t have an asset” or “my rent money goes in blackhole”
- Social — “well, I am still renting” or “You were lucky to buy yours in 2005”
- Control — “I can’t personalise my home” or “My landlord can boot me out”
We have been sold the dream that owning a home brings you life security and ability to settle down. This was only true when our parents had limited asset classes to invest and had restricted ability to tap and participate in wider economic gains of the population.
What people don’t realise is that getting a mortgage to buy a home isn’t really home ownership once you read over your legals. The title is in your name in form but a mortgage does mean that effectively it’s owned by the bank, just note in name.
Why ownership has been good so far? At some point in past home ownership created new jobs and regulated the economy. What this also meant that the general population had a life long objective that can be achieved, which formed a strong driving force to get more people to work. I mean it’s not a grand conspiracy — just the way how the world wanted to adjust and move on. It was good then.
Why is it not a good idea anymore? well, getting it on a mortgage may not be the best idea given the hefty deposit you have to put up with and commitment to stick to a locality for at least 50% of your life. What people don’t realise is that the amount of money you pay as cost of ownership forms a big part of the actual cost of property. Mortgage also exposes you to wider macro economic trends that impact the interest rates which brings uncertainty to the ultimate cost of ownership.
Let’s now work through each type of insecurity and see how we can work with them:
Financial insecurity: I have some really good news. Khan academy has done excellent analysis on ownership vs renting and I highly recommend people not on property ladder to realise they are not missing out. All you need is better financial habits and ability to save a percentage of your income in diversified portfolio that ie likely to grow over time.
I can’t give you financial advice but please spend some money in speaking to experts in this area. Consider it as fee you would have paid to your mortgage advisor.
Invest, invest and invest. Make use of your ISAs or find out more. Your goal is to tap on the gains in economy, which can also be achieved not owning a home.
Social insecurity: This is the difficult one as you have no control over how other people will judge you. But hey you can be smart and point out all the benefits you get out of renting that buying a home does not provide. Just remember your needs and how you address them are more important than what others think of you anyway. Be a proud renter and don’t forget to drop figures on how much you have made in investments instead, if that helps.
Control insecurity: This is the easiest one to address but will need some courage. Your landlord is essentially a businessman and has a transactional relationship with you that can be used to your advantage. You can always go for long tenancies, sometimes even going up to 10 years with fixed pre agreed rate of increase. He will be more than happy to do this if it’s rewarding and gives him stability.
Lastly, if you need more leverage in your negotiation then pay 2–3 months deposit voluntarily. This will always be lower than the deposit you need to own a house but will give you the power to do a lot more (of course within limits agreed) to personalise the property and will help put the landlord at ease.
If you have hit a jackpot and find that buying is easier and convenient then please go for it. My advise is more relevant for people who are already renting and want to make the most of it knowing that they have deferred buying for next five years, at least.
The real question to ask is what will home ownership result in your overall lifestyle and future opportunities. Do what is best but remember with renting you are normally just two months away from your next home in next awesome place. Home is what you make of the shelter above your head than a legal hold on property. Make the best of what you have.