The most recent data from the Halifax Buying vs Renting review shows that the average cost of renting a home in the UK will set you back £68 a month more than buying your first home.
This means that first-time buyers could be saving up to £800 a year by stepping onto the property ladder.
But if you are thinking of switching from renting to buying, what do you need to know?
Essentially, whether you’re buying or renting, you’ll be making a large payment each month. The main difference is where that money goes.
When you are renting, 100% of your monthly payment goes to your landlord. If you buy, some of that payment will go to the mortgage lender as interest. However, the rest of it will go towards building up equity, with the end goal of owning the home outright.
The other main difference is responsibility. When you rent a home and something breaks, it is generally your landlord that is responsible for fixing it. When you own your home, it is your responsibility. This could be anything from a small DIY repair to something quite costly.
Switching from renting to buying is a sign of commitment
Buying a home, and thus taking on a mortgage, is likely to be the biggest financial commitment you’ll ever make. Whilst it may be more affordable than renting, you’ll need to ensure that you can continue to pay your mortgage. Not just now, but in the future too.
There are also a number of costs associated with obtaining a mortgage. If you are renting, you’ll typically be asked to provide a deposit of three month’s rent. As a home buyer, you’ll be expected to provide a deposit of at least 10% of the property value. This is a significant sum and can take years of saving to achieve.
Other associated costs include stamp duty, legal fees, survey fees as well as any fees for arranging the mortgage.
And as mentioned above, you’ll need to ensure you can maintain the property in the long-term and have money to buy the essential items you need within the home. You may already bought some household items and furniture whilst renting, however if your rental was fully furnished, you may need to start from scratch.
Applying for a mortgage
As new buyer, it can seem like a struggle to take those very first steps onto the housing ladder. Getting a mortgage is the first hurdle to cross.
Just because you’re paying more each month in rent than you might be on a mortgage payment isn’t a guarantee that you’ll be accepted by a lender. They will want to know your affordability over the long term so will take into consideration your income and outgoings, any financial commitments including credit card/other debt payments, childcare etc.
Try to curb your spending before applying for a mortgage – it can help you to save for your deposit, and will show a lender you’re being responsible with your finances.
There are literally thousands of mortgage products out there so you certainly aren’t spoiled for choice. However, deciding on which one is right for you can be a minefield.
If part of the reason for moving from renting to buying is to save money, then it may be worth speaking to a mortgage broker.
An independent broker will be able to help you work out how much deposit you’ll need, work out exactly what you can borrow/afford and search the market to help find the right mortgage for your situation.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.