Home ownership provides security
So long as you keep up your mortgage payments, your home is your castle and no one is going to evict you when they sell or decide to move back into their home. You’re free to:
Renovate – Tear down walls, install a sauna, upgrade wiring and plumbing. When it’s your place, you can do whatever you want (building codes permitting of course).
Decorate – You can paint your walls any colour you want. The only ones judging you are your friends, family, spouse, children and relatives (you’ll be fine).
Go green – Invest in better windows and doors or switch to solar power. As the owner, you reap the benefit of making your place more energy efficient and better for the planet. It’s time for some payback.
Adopt a cat – Or dog, or a chicken. As long as you follow local bylaws, the only rules about pets are the ones you make.
Home ownership provides tax advantages
Years from now, you might sell your first home and buy another. If you’ve made a tidy profit on the sale, you’ll be in for some good news. You will likely receive Principal Private Residence (PPR) relief from capital gains tax (CGT). That means you can pour all your profit into your next home. Tax planning is one of the joys of home ownership that you’ll just have to get used to.
Thinking way down the road, perhaps further than you want to right now, a family home is something that you can leave to loved ones. Done correctly, you can reduce the tax consequences of leaving a generous gift behind. Long before that happens, get some tax advice from an expert in U.K. real estate.
Home ownership builds equity
Equity is the portion of your home’s value that belongs to you. Once you pay off your mortgage, the whole thing is yours. That means, you would get all the profit (after selling expenses) if you were to sell your home. Between now and then, you share your ownership with the bank that holds your mortgage. With every payment, you own a little more and they own a little less.
Equity requires patience
Mortgage payments include two parts. Each time you make a payment, some goes toward reducing the amount you borrowed. The rest goes toward paying down the interest on the loan. Banks, being banks, apply a very high percentage of your payments to the interest portion in the early years of your mortgage. For the first five or so years, most of your money will go toward paying interest. After that, you’ll start to see your equity building much quicker year over year. By the final year of your mortgage, virtually every dollar is wiping out the amount you owe.
Is home ownership right for you?
Owning a home is more than a financial decision. You’re taking on a commitment for a very long period of time. In addition to greater security, creating long-term tax advantages and building equity, there are other things to consider, like how this decision will affect your lifestyle.
Renting versus owning
Getting started
Buying a home isn’t just about finances. You’re taking on a lifestyle that comes with a lot of responsibility. But if you’re determined to jump in, here are a few critical steps you can take right now.
- Use an online annual interest calculator to estimate the cost of your mortgage.
- Talk to your bank about mortgage financing. That will involve checking your credit score. Experian and Equifax both offer free credit reports.
- Explore incentives for first-time homebuyers.
