One of the most common topics I get asked about on this blog is home ownership and tips for buying a house. For a first time home buyer the process can be very daunting but this rarely deters people.
Therefore, I’ve decided to run a series of posts on buying your first home and the important things to consider when taking this important step.
But first, I want to discuss why we, as a society, are so attached to home ownership. For many its seen as a great success and an ultimate goal in life – even if they have to take out a large mortgage to pay for it. There are a lot of different arguments for and against home ownership. I’ll aim to outline them to hopefully help you make an informed decision.
Of course, it is a personal decision so don’t be swayed by what other people are doing and take independent advice if necessary.
In this post I’ll cover:
- Why we’re so attached to home ownership
- Whether the housing market is fundamentally unequal
- Whether this should alter your views on buying a property
- What your next steps should be
Why do we care about buying our first home?
Not all countries are as attached to owning a home as we are. In fact, in some, like Switzerland, renting is the norm and owning a property is not considered important.
The argument is not clear cut either. Many people actually end up losing money on their homes, despite selling them for an increased price. This is because you have to pay interest on your mortgage and real time inflation means price increases are not as great as they first seem.
Additionally, owning your own home comes with a financial risk. If you can’t keep up with your mortgage payments you can lose your home, along with the savings you placed into buying it. After the 2008 Global Financial Crisis there were 9 million evictions in the US alone.
But despite these risks, many still see the value in owning their own home. The attraction ranges from simple pleasures, like being able to decorate as you please or have as many pets as you like, to security concerns, such as being comfortable in retirement. Many worry about having to pay rent when they no longer have a monthly salary. Owning your own home outright can offer your peace of mind.
Another benefit is you always have the option of renting out part or whole of the property if you need some extra income.
Is the current housing market fundamentally unequal?
The global value of real estate stood at US$217 trillion and representing 60 percent of all assets, with residential real estate comprising 75 percent in 2016, according to Savills. Given the movements in the past four years, this value is likely now even higher.
This has come at a great cost, particularly to those in need of adequate housing. Many residents have effectively been ‘priced out’ of their own markets. Financialised housing markets actually create and thrive on gentrification. Impoverished neighbourhoods may benefit from improved services, schools or parks, designed to support residents, but this in turn attracts investment from external sources and drives the original residents out.
An example of this can be found in South Africa, where private investment in the urban core of cities has sustained the discriminatory patterns of the apartheid area, with wealthier, predominantly white households occupying areas close to the centre and poorer black South Africans living on the peripheries of cities. This serves to perpetuate the poverty cycle, as the poorer residents live in areas with less employment opportunities.
Increased prices of housing and real estate assets have become key drivers in the creation of greater wealth inequality. Globally, there has been vast amounts of money put into housing, but hardly any of it has been directed towards ameliorating the insufferable housing conditions in which millions live.
Should this stop me buying a home?
In short, no. It is possible to buy a property without contributing to the unequal market and a first time home buyer should not be deterred.
Owning a home can be a great asset and a significant achievement for an individual, as well as offering security.Tweet
However, it could be worth taking certain things into consideration if you’re concerned about making society less equal.
Often these areas are described as ‘up and coming’. House prices tend to be lower and development may be happening to make the area seem more ‘desirable’. This can be attractive for a first time home buyer. But, as mentioned earlier, the problem with this is it drives house prices up. This can force long-term local residents out of the area and potentially out of the housing market completely.
In some cases, property prices can get out of control and properties can cost a lot more than they’re actually worth. For example, one-bedroom flats in Central London can cost over £600,000 – clearly far more than one should cost. However, demand allows sellers to charge this much.
Just because you can afford it doesn’t mean you necessarily should or that it’s automatically a good investment. If you do choose to buy an overpriced property you may be contributing to driving up house prices. This will make it harder for others to afford basic housing.
Am I positively contributing to the local community?
Will you contribute to the local community and support local businesses and events or will you be looking to change things? If you’re going to spend all your time in a nearby town or city what value are your adding to the area? Or are you just potentially driving up house prices? Of course, for homeowners, increased house prices is a good thing, but it is possible to make a positive difference while making money.
What are the next steps for a first time home buyer?
If you’re looking for help buying a house, then you’ve come to the right place. As mentioned earlier, this is the first instalment of a series of posts about buying a home. I plan on covering saving for a deposit, choosing and applying for mortgages and the legal aspects you need to consider.
However, the first step is very simple. Have a look online or in your local estate agent at how much the sort of property you want to buy will cost. House prices are subject to change, but this can be a useful guide.
Then consider how much you will need to save to put down a deposit and afford mortgage payments. Many places will take deposits as low as 20 percent, but this comes with significant financial risk and a larger mortgage. In the current climate, where jobs are not secure and the economy is unstable, it could be advisable to try and put down a larger deposit.
Once you’ve established how much you need to save, you can start planning. A budget can help with this, but I’ll go into this in more detail in my next post in this series.
If you found this post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences, so please do leave a comment! Is home ownership important to you? Are you hoping to become a first time home buyer?