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“Abandon anything about your life and habits that might be holding you back. Learn to create your own opportunities. Know that there is no finish line; fortune favors action. Race balls-out toward the extraordinary life that you’ve always dreamed of, or still haven’t had time to dream up. And prepare to have a hell of a lot of fun along the way.” ― Sophia Amoruso, founder of Nasty Gal, author of #GIRLBOSS
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Owning a home has long been viewed as the pinnacle of independent, adult life. Who hasn’t dreamt of a cottage overlooking the country or a Victorian conversion in the city? Sadly, the reality is that getting on the property ladder is more difficult now than it has been in over 30 years.
A study by the ONS revealed that from 2003/04 to 2013/14, the number of young home-owners (25-34 years old) fell from 59% to 36%. House prices in the south-east of England are particularly painful, with the average semi-detached property in London costing £626,731.
Yet, few of us revel in the idea of being a part of ‘Generation Rent’ (see below). The financial benefits of owning far outweigh those of renting. To begin with, you won’t be paying off someone else’s mortgage and can make a hefty profit if house prices continue to rise.
Buying a house is likely be the biggest purchase you will ever make in your life. You have to be prepared to pay off your mortgage, which often takes a good 20+ years. It helps to be informed before you take the big plunge. Let’s get you started!
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The low-down: To buy or not to buy?
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We’ve established that buying a house is an expensive, long-term commitment - which sort of begs the question: is it really worth it? Saving for a deposit often requires one to master the art of frugality: you may need to learn to say no to nonessential purchases (buh-bye, Harrods Shoe Heaven), which can feel rather sad (we feel you).
However, in terms of investment, buying a house is most certainly worth it. According to Savills, average house prices across England and Wales have increased by nearly 300% in the last 20 years, with the average sale price rising from £66,110 in 1995 to £262,847 today. The continuous rise in prices is caused by the demand for housing outstripping the supply - simply put, there just aren't enough houses around.
So, how in the world do you scrape up the cash for a deposit without finding yourself under intense financial strain?
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Off to you: Getting you on the ladder
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Before you rush off to the estate agents and schedule to view Grade II listed beauties, be prepared to do your homework and check what you can actually afford to buy. We’d hate for you to find your dream home only to realise the only way to pay for it is to sacrifice a kidney. To avoid said scenario, make sure to do the following:
- Check your savings and determine the size of your deposit;
- If you are a first-time buyer, look at any external sources of finance you can take advantage of, e.g. the help-to-buy scheme the Government launched last April;
- Determine how much monthly interest payment you can afford;
- Browse around to see what kind of mortgage you can you get (take a look at some terms). This will largely depend on your current salary and credit history;
- Keep in mind the costs involved in buying a house and moving. They’re easy to forget in the midst of the excitement that is house hunting, but can add up quite quickly.
Now onto the exciting bit - the one and only house hunt! Don’t be discouraged if you don’t fall in love with the very first property you see - it can take months, even years, to find The One.
- Once you’ve found the perfect home (bear in mind there is likely to always be a small compromise to make), you should go ahead and make an offer - either at or below asking price;
- If your offer is accepted, you can start “building a team” that will help you finalise the sell. This can include a small but invaluable army of solicitors, lenders, and, sometimes, surveyors and architects;
- After your mortgage gets the green light, and your solicitor is happy with the all the checks (this can take up to 3 months), you can go on to sign the contract, legally committing yourself to the purchase and deposit;
- You’re all set! Pick up the keys and don’t forget the bubbly!
For a great visual summary of the process, check out the Stylist!
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The bigger picture: Rise of Generation Rent
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The ever so depressing term known as Generation Rent refers to the increasing number of people that find themselves stuck in a vicious cycle of renting. According to PwC, renting has become the norm for 20-39 year olds - and not because they willingly choose it, either. Decades of soaring house prices and declining loan-to-value ratios have created significant barriers for first time buyers. And if that weren’t enough, it has also become extremely difficult to save for a deposit due to the high cost of renting.
A study by Nationwide shows that between 2002 and 2015, UK house prices rose by an astounding 88%, with median earnings rising only by a quarter. In essence, this means that buyers are now paying 6 times their average salary for a house - a particularly bleak state of affairs, considering that mortgage lenders will traditionally let you borrow up to 4 times your salary.
As generation X benefits from the rising house prices, millennials find themselves struggling. It’s hardly surprising that 2.8 million adults, aged between 21 and 34, are still living with their parents (for all the wrong reasons). According to Aviva, if house prices continue to rise at the rate that they have been, by 2025 the UK will see a whopping 3.8 million young adults living in their parent’s homes. So much for financial independence!
Policy makers need to get serious about reversing this trend, and they need to do it fast. The most efficient way to tackle this is to create a large and sustainable increase in the number of affordable new housing. The help-to-buy scheme is a good start, but it isn’t enough.
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