Owning my home means having more freedom
Welcome to the first post of the first series “My Home?” In this article, we explore home-ownership from a personal perspective of a millenial living in the city of Portsmouth in England. She shares her experiences of the impact of being a home-owner in a time of crisis and the experience of buying a home. She talks about how she gained agency, freedom and control but also the challenges of achieving these factors such as navigating the complex mortgage process with a limited budget.
Age: Currently 33. At the time of buying 30
Household: 2 adults, 1 cat
Occupation: Software Developer
CityPlanista Profile: Born: Vienna, Austria Raised: Neuss, Coburg Germany Currently living in: Portsmouth, UK
As a homeowner have you experienced any particular challenges during this pandemic crisis?
We were in the middle of doing a kitchen renovation when the pandemic broke out. As my boyfriend’s parents live close by, we were initially doing our laundry and batch cooking at theirs, until our kitchen would be ready to use. Due to social distancing this was no longer possible, which meant we had to find alternative ways to cook and clean at home. Luckily, we had ordered a lot of things before the pandemic started and we were able to fit a lot of the kitchen ourselves. However, we still needed to get some tools and supplies, which wasn’t so easy to get. We are still unable to finish off the kitchen entirely as professionals we have quoted for with regards to tiling, for example, are unable to buy from their regular supplier.
Did you consider any of the UK Government support packages such as the mortgage holiday?
I did take a look at the mortgage holiday and decided against taking it unless it was really needed. Since we bought our house, we’ve been regularly overpaying our mortgage, to reduce the amount of debt as quickly as possible. When my boyfriend got furloughed was the first time, I stopped the over-payment as I thought the extra cash would be better accessible. None of our jobs are guaranteed in these uncertain times and although we currently still have enough money coming in, we don’t know for how long. I decided against the mortgage holiday for now, as I’m still able to pay my mortgage ATM and because after the mortgage holiday, you will be paying a higher amount to compensate. I figured if we both lost our jobs in a couple months time, that would be the worst time to be paying a higher mortgage amount, if we had taken the mortgage holiday.
Why did you decide to buy a house?
I guess the main reason we decided to buy a house was due to financial security.
- Once you are on the property ladder, monthly mortgage payments are often cheaper than rent and you get more for your money. At the time we were renting a one bedroom flat for £575 a month and currently we are paying for our mortgage £500 a month for a 2 bedroom house with garden in only a slightly worse area. Whereas rents are likely to increase over time, mortgage payments are likely to decrease over time, until eventually all is paid off.
- With state pension being ridiculously low and rent being ridiculously high, it seems that unless you own your house at the time of retirement, it will be impossible to have enough money at the time of retirement.
- Freedom of being able to make changes to your living space. In other countries, renters often have more freedom to make changes to the properties they are renting, from painting the walls, laying new flooring and even installing your own kitchen. In those countries, renters have more rights, often living in properties for several decades with little rent increases. Landlords are also more liable to fix issues to the properties quickly. In the UK it is not the case. Here even hanging up a picture can result in unacceptable high charges. Landlords and estate agents are often out to get as much money out of their tenants as possible, with rent increases, renewal fees, taking as much of the initial deposit as they can get away with, whilst at the same time providing the most minimal service. I’ve lived in places, where an entire room was unusable, because it had turned mouldy due to a roof leak. The landlord was not interested in fixing. Also had several days without electricity due to some fault and both landlord and estate agent unreachable. As a homeowner you have more control over repairs and decorating to your own living space, providing you have enough money of course.
…we abandoned the idea of living in our preferred area and instead compromised
Why did you choose Portsmouth, UK?
My boyfriend and I have both lived and grown up in an area, where it was possible to walk to most places. We don’t own a car, so it was important to us that we continue to live in an area that is walkable to local amenities as well as public transport and the beach. At the time, I was working in another town, which meant I needed to be close to the train station and we wanted to be close to my boyfriend’s work as well. We liked the area we were renting in, however house prices in that area were not affordable. We quickly realised that a 2 small bedroom flat in that area, cost the same as our 2-bedroom house with garden in the area we eventually bought in, with just 20 minutes walking distance apart. Although house prices were more likely to go up faster in our rented area, you would be stuck paying ground rent and maintenance fees, whilst having less control over the state of the building the flat is in. So, we abandoned the idea of living in our preferred area and instead compromised by getting as close to this area as possible, of course trying to avoid known rough neighbourhoods in the process.
What other costs did you factor in and how did you manage them?
When deciding, how much deposit I had for the house and what part of my savings I needed to keep back for other payments I considered the following:
• stamp duty
• paying the solicitor and the broker
• paying for immediate repairs to the new house
• the mortgage fees
How did you manage to get the deposit? What challenges did you experience?
I would say I’m generally relatively good with money and have always been able to save, even when I was not earning very much.
In addition to my regular savings, I invested some money into one of those help to buy ISAs, which had launched a few months before we were looking to buy. I picked the one, with the highest interest rate at the time. As there was a limit of how much you could pay in, and therefore how much the government would give on top, I made sure to always pay in the maximum amount, in order to get the most benefit from it. In the end, the government top up, along with the interest, amounted to a couple of hundred pounds I could use for the deposit.
But despite this, my savings along with the maximum amount I could borrow (4.5 my yearly salary at the time) was still not enough to find any decent properties. We were already looking in one of the cheaper cities in the south of England and I was starting to think, we would never be able to buy.
You hear about mortgage offers where you only need 5% or 10% deposit. These kind of mortgages are meant to help first time buyers. I had more than that in my savings alone. What people might forget is that those mortgages are only possible to get, if you can make up the rest in the mortgage amount, which is only possible if you earn enough. If you don’t, you will be forced to put down a higher deposit in order to secure your mortgage.
Fortunately, I was in a position to have parents, who were very generous and gifted me some money. In the end, in order to get the size of house, in an area we were happy with, with only my salary, we had to gather 30% of the house price for a deposit.
Are your parents homeowners? Did this impact your decision making?
Yes, both my boyfriend’s parents and my parents are homeowners themselves.
I think in general, it is pretty obvious that in the UK, the market favours homeowners and landlords over renters. You just need to take a look at what landlords can get away with legally and illegally, whilst regularly increasing rent prices. Maybe having parents who own their own house made us more aware of the financial costs and benefits of owning. However, I think having rented some pretty awful properties myself, probably also influenced my decision, that I would prefer to buy than rent.
What actions would you recommend for those looking to buy a house?
- Check to see if there are any government incentives you could use to help buy.
- Buy a property with another person, so you can combine your income. Make sure this other person is financially responsible and trustworthy, but also make sure to write up an agreement, in case there are issues further down the line.
- Get a mortgage agreement in principle. Some estate agents won’t even let you view properties unless you have one.
- Identify what your budget is and what your requirements are. If you are unable to find a property that meets both, see where you are willing to compromise. You might be able to upgrade your property later on, but you might financially be in the property longer than expected.
- If need be,find a cheaper neighbourhood, that you’d be happy to live in.
- Be willing to make improvements to the house yourself. Often properties that require work on them, are cheaper. By doing some of the work yourself, you will be able to save some money.
- Try to reduce your outgoings, so you can save as much as possible. This might include walking places, cooking yourself, cancelling gym memberships and replacing them with home workouts. Buying less materialistic things or if you have to buy, buy second hand clothes or other items.
- See if you could sell some unwanted items to give you extra cash and reduce the number of items that would eventually need to be moved.
- Depending on how close you are to buying. Invest your money in high interest rate investments, so you get the most out of your savings. Make sure you’ll be able to access it, when you need it.
- Get a credit card, if you don’t already have one. If you don’t have one, I’d recommend one that gives you rewards. Use the credit card for small purchases that you will be able to pay off in full the following month. That way, you will get the benefits of the rewards, whilst building up your credit rating.