As much as I love blogging, it does not pay the bills -yet- and as such I have a proper grown-up day job: I am a Mortgage Case Manager. I know, right! In my privileged position as both a homeowner and as someone who gets to help other people become homeowners, I am able to let you in on a little secret … owning your own home is not all that.
There I said it. It is an intrinsically British phenomenon to want to burden yourself with hundreds of thousands of pounds of debt for your entire working life, and I know that no amount of me telling you will convince you otherwise, but hopefully the following points will be of comfort to those who think they are failing in life because they aren’t mortgaged up to the hilt yet.
An average first time buyer borrows almost 4 times their annual income, meaning that someone who is earning the average wage in Bristol, where I live, of approximately £18K a year would only be able to borrow £72,000. The average price of a house in the city is £255,000. For those who don’t have a £183K deposit saved up, it would appear that home owning is near impossible! But take heart. There are many plus sides to not being burdened with homeownership.
Home ‘owning’ – there is something particularly galling about watching You tubers, or seeing Instagram posts of beautiful interiors that belong to people half your age (I am a bitter old woman, what can I say) How can someone that age possibly own a house! But take heart – technically, most of them don’t either; The bank does. This means that they are effectively renting too, just without a landlord to fix the boiler for them. And what if you had taken out an interest free mortgage? These are all but unavailable to new borrowers now, but back in the day they were all the rage. They meant you only paid back the interest that had been incurred on your loan, but that you still owed the full amount you borrowed at the end of the term. Mortgage companies are working with people to help those stuck in the ‘interest trap’ but if you cannot rearrange your finances, you will probably have to sell your home to repay it – that is unless you were preternaturally lucky with your endowment and you have managed to find the one repayment investment vehicle that is actually making good on its promises. (Totally not bitter about my crappy endowment that wasn’t worth the paper it was written on… deep breaths)
Mortgage debt per household is at the highest level recorded; in the ‘Money Charity’ report produced in the last quarter on 2017, the figure for the average outstanding mortgage was over £120,000. This has come about due to the high house prices which have in turn resulted in higher loan amounts and longer loan terms; the number of people with 35-year mortgages has effectively quintupled since 2005.
Therefore many owners are tied into the ultimate long term lease; they have the major downside of renting – potential homelessness if they don’t pay up, but none of the bonuses.
Hidden costs – My house is… let us be generous and say ‘in need of a bit of TLC’; okay it is a dump. The flush just snapped off the toilet, we have no hot water and the double glazing is shocking. Here’s the thing though. All those repairs cost money. If I had a landlord I could get them done for me, but as it is the cost of upkeep for my money pit falls squarely on my impoverished shoulders. It turns out that homeownership comes with loads of hidden costs that no-one thinks about until the bills roll in. While those who have rented for a while will know what to expect in terms of utilities, anyone moving from a parents home will be surprised at all of the costs they hadn’t taken into consideration once they become homeowners.
Planning on buying a flat? :
When I bought my first property, back in the heady days of 1995, all we could afford was a flat. This was fine by us, we were a young couple, starting out and it would be plenty big enough for us. I mean, okay, it was on the second floor, and completely the other side of town to my entire family, but it was ours! We were property owners…Weren’t we?
The flat we purchased was one of a block of six. While our flat, and the one belonging to couple opposite was owned, the four flats below us were ‘council’, this meant when all of the flats had their windows and heating upgraded, we went without. It also appeared that they were paying a heavily reduced ‘service charge’. We were not made aware of the service charge until we moved 5 years later.
It was at this point we were advised that we should have been paying monthly charge towards the communal gardens (that had we never used), the staff who ‘cleaned’ the stairwells and common areas (whom we had never seen the whole time we lived there), and we had to pay towards a window that had been broken on the main entrance door, that had occurred during a rather loud party of the lad in number 23 on the ground floor. Our flat was held hostage; we could not move until we had forked over a few thousand pounds in charges.
Problems often occur when purchasing leasehold properties. This essentially means that while you own your home, you are ‘leasing’ the land on which it stands – this is very common in flats as the leaseholder will own the whole building but rent or sell the flats as separate units. It can also apply to some houses. In this instance you may be charged ground rent. Mortgage companies ideally expect there to be at least 85 years remaining on your lease, and they can be next to impossible to sell on once this lease gets closer to running out, so ALWAYS confirm the length of the lease on a property before even thinking about buying it!
Fine then, I’ll get a house – a freehold one! – Instead.
You’ve jumped through all the hoops, starved yourself and gone without new clothes and holidays to save a deposit, you got your mortgage and now you are a homeowner…of a house, you’re not falling into that ‘leasehold flat’ trap! The first thing you will need is lots of insurance:
You’ll need Life insurance – don’t think dying will get you out of paying back that mortgage! You will need a policy that covers your mortgage term as a bare minimum, with a sum insured that will cover your loan amount, and possibly enough to bury you if you want to be sensible about it.
Public Liability Insurance – just in case the postman trips on your pathway, bangs his head, and tries to sue you. Don’t worry though, this is often included in your…
Building insurance which you will now need as a condition of your mortgage. You may have had contents insurance if you previously rented, and this is the same…except for boring stuff, like the wind taking your roof off, or your pipes bursting and flooding your bathroom. To be fair, the insurance itself is not that expensive…it’s the excesses that can by pricey. Many insurers will not pay the first £1,000 of any claims relating to subsidence, and if a large crack starts appearing across the front of your house it will be something you want to get sorted pretty quickly! No landlord to sort it – it is all on you now!
It’s not just insurance, there are all the other bills which will suddenly seem really expensive – you will certainly realise why your Mum was constantly telling you to turn the lights off once you start paying for a whole house worth of electricity! And maybe your new house has a water meter… goodbye long showers! Don’t forget council tax; what band is your new house in? And as for neighbours, fences and trees…
Negative Equity: You’ve invested all you have and are now diligently making your mortgage payments every month. But what if the market crashes! Or, slightly less melodramatically, the council decides to open a quarry down the road, or a massive out of town shopping centre means a massive bypass will be built outside your house. All of these are going to have an impact on the value of your property, and you could now find yourself in negative equity. All his means is that the amount you still owe on your mortgage is now more than what your house is worth. In everyday terms, this isn’t a huge problem. This is your home and it doesn’t matter what it is worth…unless you want to move that is. It will only take a 10% drop in house prices for one in every ten borrowers to fall into negative equity, and as most of these people will then choose to stay put rather than move there will be a knock on effect on the housing market as less properties will become available to buy. This links to our next homeowner problem…
Lack of change: You are now stuck in one place. With renting comes flexibility; you can swap homes, cities, counties if needs be or if employers request it, and all you have to do is wait for your rental lease to expire and pack up your stuff. If your place had been furnished, you don’t even have the stress of dealing with lugging wardrobes! There is a reason why moving appears in the top five most stressful life events. Suffering the pain of paying out for a survey, only for the chain to break and the house you thought you were going to move into slipping from your grasp is something few people want to repeat. However, staying still is not for everyone, and the idea of living in one place for the next 35 years may be enough to put someone off the idea of owning a house entirely.
I had planned to write a positive takeaway for those still determined to be homeowners; there are plenty of tips to share, but this piece is a bit longer than I had intended. It also means I can do some more research and I can go off and work on a piece with (totally non legally binding) advice for improving your chances of getting on the housing market if this piece hasn’t put you off.
Obviously all housey based comments are my own, and your home is at risk if you do not keep up repayments…bla bla bla.. please talk to your lenders/brokers/read reliable sources, before committing to long term borrowing.