Is your house a terrible investment?
The state of the housing market possibly comes second only to the weather as the most regularly-discussed topic in the UK. Topics are many and varied and can get very emotional, especially when it comes to the issue of property investment. While some people believe that there is no such thing as a bad property investment, others believe that property can be a terrible investment. The truth is that every investment decision has to be taken in context and it’s very rare for there to be “one-size-fits-all” answers to common questions, so, with that in mind, here are three questions to consider before deciding whether or not buying a house is currently a good investment for you.
Are you sure you can stay in one place for the foreseeable future?
There are a lot of upfront costs involved in buying a house (in addition to the purchase price) and even though the seller may be responsible for some of these, they will, obviously, look to incorporate these costs into the sales price, so that the buyer will ultimately end up paying them. The longer you can stay in your house, the longer you will have to recoup these costs.
For the record, if the thought had crossed your mind that you could buy a house now and let it out if you wanted or needed to move, then be aware that this would change your status from a residential home owner to a landlord and that is a hugely different matter with a number of financial and legal implications. In short, these days, that is definitely not a step to be taken lightly.
Will you have enough spare cash to maintain your home appropriately?
You might think that getting the keys to your new home was an “and they all lived happily ever after” moment, but actually as a home owner you will have full responsibility for maintaining your new property. This doesn’t just mean the fun stuff, like interior design, or the relatively easy stuff like minor DIY. It means all the “big ticket” maintenance costs like the periodic replacement of central heating, windows, doors and such like, not to mention security. As a renter, most of that can be directed straight to your landlord (tenants do have some responsibility for security), but as a home owner, it’s all down to you.
Do you grasp the fact that homes can go down in value as well as up?
Take a look at any graph of house prices in the UK over time and you will see that while the overall trend is onwards and upwards, there are times when the upward trend flattens and there are also times when it reverses course and heads downwards, sometimes steeply. If you buy at a peak and need to sell during a trough, then you will take the hit, not your mortgage lender. This is one reason why lenders appreciate large deposits, amongst other benefits, from their perspective, it means a property can decline further in value before they need to start to worry about the buyer defaulting on their mortgage.
Property investment may be a viable way of making money for some people but like all investments it carries risk. When it comes to the question of whether or not to buy your own home, it’s advisable to look at the financial implications carefully rather than just assuming that you need to get on the property ladder as quickly as possible. Sometimes it makes perfectly solid financial sense to rent, especially if geographic mobility is important to you, such as young adults focusing on making the most of career opportunities.