It’s not uncommon for young people, especially those who’ve already spent a few years as rentiers, to ask “Am I the right age to own my own home”. It’s a perfectly valid question, though the answers are really more dependent on individual circumstances than age.
As property prices increase all over the world, and more and more wages fluctuate there’s a growing disparity between the average wage and the cost of living. Most people under 40 find themselves having to spend far more on the necessities than their parents, and as such are less prone to saving and / or investment.
Thus, many people feel that they have no option but to remain in the private rental market.
Now, that’s not necessarily a bad thing. Renting provides one with more freedom and less financial commitment than owning a property which can be very useful, especially at the start of one’s career. 42% of millennials, for example, will move jobs every one to three years. In their rush to get a “foot on the ladder”, some people often overlook the benefits of remaining in their rented accommodation, at least for the time being (more on that later).
If you have your eye on a property, or are even just curious to see whether or not it’s the right time for you to join the market, then there are some searching questions you need to ask yourself.
Do I have a deposit, and if not can I realistically save for one?
Saving for a deposit is one of the biggest stumbling blocks for first time buyers. Buyers who are already in a chain tend to use their existing capital from their current home to help fund the move. Being a first time buyer affords you more flexibility than your homeowner counterparts because you don’t have to wait until your existing property is sold and this may make you a more attractive prospect to vendors.
However, in order to be taken seriously by vendors and realtors and mortgage lenders, you need a sizeable deposit. The amount you need to save will depend on the value of the property in question and your mortgage lender but anything up to 20% is usually the norm.
If you don’t have a specific property in mind then it’s worth browsing the market, looking at properties in your desired area that suit your needs and get an idea of average prices on which to base your calculations.
If you’re lucky enough to have substantial savings then there can be few investments more shrewd than sinking at least some of it into a deposit on a property, however for most of us that’s not an option and so significant savings need to be made.
If you’re able to move back in with parents or relatives for a while then this can be a great way to save a substantial amount very quickly as your living costs will drop dramatically. For a variety of reasons, though, this simply may be an option for you, but the good news is that you can still make savings without having to live off bread and water. You may want to consider:
- Letting out a spare room to a lodger.
- Moving in with your partner, even if temporarily, if the relationship is conducive.
- Checking if you qualify for any government ‘help-to-buy’ schemes.
- Take out a set amount of cash each week for food and living expenses and leave the credit / debit card at home.
Whatever strategy you choose, make sure that you establish a set amount that you will set aside each and every month for your deposit and calculate how long it will take to reach the desired amount. If you are finding it easier than expected you can set more aside and look forward to buying a little earlier, on the other hand if you’re finding it too hard then it’s worth decreasing the amount you save and setting your target date back a little.
Bear in mind that the more you can get together as a deposit the more favorable your monthly payments are likely to be. Which brings us to...
Will I be able to afford the mortgage payments?
One of the surest way to propel yourself into financial difficulty is to overestimate the amount that you can afford to borrow. While we all aspire to owning our dream home, it’s important to bear in mind that our first home is rarely our dream home. Concessions may need to be made to get on the property ladder and into a property that you can afford.
This home loan calculator is a useful tool for calculating roughly what you can expect your monthly mortgage payments to be, but it’s also important to remember that all of your existing financial commitments will likely still apply.
Utility bills, tax, credit card and / or personal loan repayments… All of these things will still need to be paid when you move into your new home. Plus, you may have home insurance or other new financial commitments when you move in.
And don’t forget the hidden costs of moving house which may include:
- Surveyors and valuations
- Mortgage arrangement feeds
- Indemnity fees
- Realtor’s / estate agents fees
- Broker’s fees
A lot of the time, you can incorporate some of these additional costs into your mortgage but remember that this increase will affect your monthly payments (and, potentially, interest rates).
Even when you’re moved in, you should still keep up the savings. Not only is it financially sensible, it’s essential to make sure that you’re not crippled by any expenses caused if something goes wrong with your property that would previously have been your landlord’s problem.
Is this the property right for me?
While you must be wary not to hold out for too long waiting for the perfect property to come along, it’s also easy to go too far the other way and jump into a commitment to the first property within your price range that comes along.
It’s important to think long and hard about the property, and how well it suits you. Think about your current situation and your situation five years down the line. Nobody can predict the future but if your circumstances change, how likely is it that you’ll still be happy and financially secure in this property?
You might be tempted to opt for a fixer-upper in the hopes of saving some money, but if this is the case it’s vitally important that you’ve correctly estimated the time and costs involved in renovating. If you don’t intend to use contractors, do you have the time, knowledge and skills to carry out the renovations yourself?
There are a number of easy traps to fall into if you fall in love with a property, so make sure that you don’t make any of these fundamental mistakes.
- Overlooking important flaws
- Overestimating your ability to renovate (at least within your budget)
- Falling in love with a property that’s out of budget
- Assuming that the first property you like is the only property you’ll ever like.
Emotional attachment to a property can cause us to make ill-conceived or financially irresponsible decisions so when viewing always try to remain emotionally detached and avoid thinking of the property as ‘yours’ until you have the keys in your hand. This will prevent you from acting out of desperation and making commitments that you’ll come to regret later.
Are my circumstances right?
Where are you in your career right now? Do you like your job? How long do you think you’ll be happy there? How secure is your job? What will you do if you’re made redundant or fired?
These are unpleasant and difficult questions to answer but they’re, unfortunately, essential when you become a first time buyer.
If you lose your job, your monthly commitments will still stand and if your monthly commitments are so high that they prohibit you from saving then this can be catastrophic for your finances. However clever, capable and eminently employable you may be, it’s important to consider how your finances would be protected if you were to be rendered unemployed.
Even a week of unemployment could have serious consequences for your personal finances.
If your dream job presents itself outside of your home town or city and outside of commuting distance, would you be able to relocate to a different city or even a different country in pursuit of your dream job?
The last thing you want is to find yourself resenting your home because it’s held you back from pursuing a golden career opportunity.
So now you’ve thought about it, are you ready?
It’s generally considered bad form to answer a question with a question (let alone several) but if you ask yourself these questions and answer them honestly, then questions of whether you’re the right age or whether it’s the right time will hopefully become much less daunting. By answering them you’ll be able to take those first steps towards owning your first home with confidence.