It may seem only a few years ago that the housing market was seen as a sure-fire route to financial success – if only you could get a foot on the bottom rung of the ladder. These days however, the situation is clearly much more complex. There are still good reasons for buying a house in certain situations, but there are increasing arguments for renting and even potentially for selling up now and renting as either a short- or long-term solution.
In order to buy a house, most people need to get together a deposit and a mortgage. The word mortgage comes from the French words mort and gage, it literally means dead promise. The term came about because either debtors fulfilled the promise to completion (death) or they had their asset taken away meaning that it was dead to them. Putting this in a modern context, in spite of the massive profits made by some people in the era of ever-rising house prices, it is highly unwise to count on being able to pay off a mortgage by being able to sell a home for more than you paid for it. In fact modern buyers need to be well aware of the risk of having to sell a home for less than they paid for it. This means that buyers need to be confident that they can ensure a stable income stream to make their monthly repayments no matter what and repayments means reducing the sum owed rather than rest being able to make the interest payments and on the subject of interest, generally speaking, when the Central Bank puts up interest rates, so does everybody else – meaning mortgages cost more. All this means that for younger people, even those with children, the decision as to whether to buy or rent needs much more consideration than just working out if they can put together a deposit and get mortgage approval. The implications of being foreclosed are so great and can have such a long-term impact on a person's career, that even with children, it can be safer to rent.
People In A State Of Change
These days even people who are more advanced in life and have more experience of employment can find themselves in a state of change for various reasons. They may be facing employment challenges or working out how to help a family member or loved one with health, financial or personal issues. People at this stage of life are more likely to own property so the relevant question is whether to stay put or to sell up. While inertia is one of the most powerful forces in life, it can have a devastating effect on personal finance, which means that it is strongly recommended for people who own property to set aside time every month or so to consider whether their current situation is appropriate and what steps they need to take to protect themselves. It is crucial to make a realistic assessment of the security of your current job and of how long it would realistically take you to get another one if you lost it. If the answers to either of these questions are “I don't know” then this is usually a strong sign to consider renting. As a minimum you should aim to have at least 6 months of full living expenses set aside. If you don't, see if there are any practical steps you can take to save money to put that next egg together. If you're too stretched already to manage this, then this is also a sign that selling up may be your best choice.
Seniors And Retirees
While many people of an older generation may appreciate the stability of owning property, particularly if they have already paid off the mortgage, it's worth remembering that owning a property carries maintenance costs. Admittedly these are calculated into the cost of renting, but the cost of renting is fixed for the duration of the contract whereas it can become dangerously easy for those on limited incomes to skimp on maintenance, potentially leading to more significant issues, which may not be covered by insurance, if the home-owner is considered to be responsible.