As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
To buy or not to buy?
For many people in their 20s and 30s in the UK, the ultimate dream is to get a foothold on the housing ladder. 
Coughing up increasingly obscene amounts for rent, particularly within the confines of the M25, is something that pleases precious few, and the insult to what already feels like severe injury is that such payments serve merely to pay off the mortgage of a stranger.
It all amounts to what has been aptly dubbed the ‘housing crisis’, and for those within touching distance of said elusive ladder, the decision to hop on board the homeowners’ wagon at the earliest available opportunity seems like a no-brainer. However, the still waters of the complexities and costs involved run deeper than many may think, and it is certainly best practice to factor in all the variables before making one of life’s greatest commitments.
Buying is a good idea, right?
The advantages of owning one’s home are fairly well documented. Not having to deal with troublesome landlords is certainly one of the more favourable non-financial benefits! And if stability is what you’re after, you can rest easy in your own home safe in the knowledge that there will never again be expiring lease agreements hanging over your head. It’s an especially important factor for those with young children, as it allows them to more easily settle into the school of their choosing.
First-time buyers also received a surprising boost at Budget 2015. Chancellor George Osborne announced that a new Help to Buy ISA (HISA) scheme is set to launch this autumn, meaning the Government will top you up by 25% on up to £200 saved each month. Furthermore, if you put in up to £1,000 when you first open your HISA, you will receive an additional 25% kickback on this amount. Therefore, you could earn up to £300 in top ups by the end of the first month (i.e. 25% of [1,000 + 200]). The maximum that Government will contribute in total is £3,000, which by that stage would mean you’ve saved £12,000 on your own. Furthermore, you’ll earn interest on these ISAs; as you would with an ordinary cash ISA.
So what’s the downside?
Owning a home is a massive financial undertaking, and it’s important to take into account everything that goes into it before signing on the dotted line. The following factors highlight the potential drawbacks:
- Upfront costs: Making that first down payment on a property is a massive step, but by no means is it the finish line. Don’t forget that beyond your mortgage repayments, you’ll also need to cough up for legal fees (usually a solicitor), a survey, stamp duty and removal costs.
- Rates: Although base rates have been at record lows recently, such a status quo cannot last forever. Those who rent property will largely be unconcerned when Governor Mark Carney next decides to hike these rates, but for many of those with a mortgage, repayments will increase accordingly, thus making it more expensive to be a homeowner in relative terms. Of course, landlords may pass on some of this increase to their tenants, however the impact should be less significant.
- Maintenance: As much as you may want to rid yourself of that nuisance of a landlord, the truth is that as a renter you are generally not liable for repair and maintenance costs. As a homeowner, you will be. Can you afford to fix the boiler if it breaks down? If the roof is leaking, will you be able to cover the costs of getting someone in? Spreading yourself too thinly in terms of budget could mean you miss out on meals out, holidays and activities with family and friends. Owning a home is no good if you miss out on the joys of life!
- Fluctuations: If the value of your house falls, there is a chance you might be unable to sell if it ends up dropping below the amount you owe your mortgage lender.
- Flexibility: One of the great perks of renting is that you are far more mobile. If you move office, or want to be closer to friends, there are fewer barriers with relocating than if you are a homeowner. Selling up and moving on is not only more time consuming; it’s more expensive too.
So which option is best for me right now?
The decision ultimately comes down to value. The big attraction of being a homeowner is that it gives you the chance to build your net asset value, or ‘equity’.
And even if your mortgage is more than the equivalent rental cost initially, you shouldn’t become too disillusioned as there is a good chance the property’s value will appreciate over time. In addition, rentals will likely continue to rise, and you might recoup any ‘losses’ over this period sooner than you think.
A good rule of thumb is that if your house value needs to go up by 3 per cent each year over rent for you to break even over a five-year period, then – other things equal - buying is probably for you. But once this number creeps up to 5 or 6 per cent, then renting could be the more sensible choice from a financial point of view.
In addition, you need to be in it for the long haul if you’re looking at buying. If your time horizon is only five years, then you’re probably better off renting, as it often takes at least five years to come out ahead in terms of your purchase.
In the end, it all hinges on your personal situation as to which option is best for you. The appeal of paying off your own mortgage each month, rather than someone else’s, will always carry immense appeal. And indeed it is something legitimate to strive for. However, the key is to ensure that you are ready, in every sense of the word, for all that comes with being a homeowner.
Related articles:
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
As with all investments, your capital is at risk.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
When it comes to investing, there are numerous questions that need to be asked, and lots of things which need to be properly understood before committing your hard-earned money
Featured
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
There is a variety of literature and research illustrating the importance of building brand loyalty, albeit with some degree of variance.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The idea of peer-to-peer (P2P) lending is a simple one; you lend money to those who wish to borrow, with a view to receiving a great return for doing so.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Most popular
January tends to be a comedown following the Christmas festivities, and, from a personal finance perspective, a time for many Britons to lick their wounds. In particular, for those who’ve over-extended their credit card, it may feel like the walls have started to close in.
A new year, and indeed a new decade has dawned. Reflecting on 2019, what seemed to have got lost in the noise and political hysteria was the fact that the UK economy actually held up remarkably well.
As the good times rolled in the mid-2000s, only a precious few sounded the alarm as lending became increasingly reckless. Northern Rock's infamous 'Together' 125 per cent mortgage epitomised the rush for high loan-to-value (LTV) deals at a time when it was thought that house prices would just keep going up forever.
For those with an eye on the economy, 'GDP day' is always one to mark off in the calendar each month. And it's been a hot topic for the UK in 2019, with the latest update showing zero growth for the period from August to October.
One of the perceived strengths of the auto-enrolment pension scheme is its simplicity – indeed, it is actually a greater effort for an employee to opt-out of a workplace pension than it is to be enrolled into one. No further actions are required, and the retirement fund grows as the months and years pass by.
On Monday this week, a new FCA regulatory framework came into effect for peer-to-peer (P2P) lending in the UK, in line with June’s PS19/14 Policy Statement.
Recent
The Lending Works Shield does not give you a right to a payment so you may not receive a pay-out even if you suffer loss. The Lending Works Trustee has absolute discretion as to the amount that may be paid, including making no payment at all. Therefore, investors should not rely on possible pay-outs from the Lending Works Shield when considering whether or how much to invest. For more information click here.