So you want a mortgage?

Required Reading


So you want a mortgage?

Home-buying for beginners: Buying a home, most people will tell you, is the biggest investment you will ever make. It is certainly likely to be the biggest purchase that you will ever make; whether it turns out to be an investment in the sense that it will reward you with an increasing real value, so that when you come to sell you will make a decent profit, is another matter.

At any rate, for most people, buying a place to live in -as opposed to renting one, or sharing accommodation with parents -is the most sensible and often the only possible option to take.

The increase in owner-occupation

The growth in 'owner-occupation' property in this country has been steadily increasing over the century. In 1914 just over 10% of all dwellings were owner-occupied; by the end of the last war, the proportion had risen to a quarter. In 2000 we passed the half-way mark, and since then the proportion has been inching steadily upwards, so that, by the end of 2012, 56.6% of all properties were bought (or in the process of being bought) by their occupiers.

This growth has taken place almost exclusively at the expense of the privately rented sector, which has shrunk from around 30% of the total in 1960 to just over 10% today.

There have been various reasons for this: one of the main ones, curiously enough, has been inflation. If there was no inflation at all, there would be little to choose, in monetary terms, between renting and buying.

Assuming that you have to borrow the money to buy your house, in a 'zero inflation' situation it will work out more expensive to buy than to rent, because you will be paying capital back as well as interest on the money you borrowed. If you are renting, on the other hand, you are effectively only paying 'interest' to the owner of the property, who has the option of selling the house and investing his realised capital in something else (a deposit account, for example) that pays interest.

There are, of course, all sorts of reasons why this theory does not work in practice. Landlords may be greedy and seek to get more rent from their property than the value of it actually deserves; they may decide at a moment's notice to sell the house, so that you're out on the street with no warning; or you may find it difficult to force your landlord to keep his side of the bargain, which is to maintain the property in a decent state of repair.

Because all these proved very real problems, the Government stepped in with the 2004 Rent Act, which gave a measure of protection to tenants. This in itself accelerated the decline in privately rented property because, broadly speaking, it shifted the whole advantage from the landlord to the tenant. It became extremely difficult for a landlord to get rid of tenants, even if they were not paying an economic rent. Renting out property was no longer a sensible investment policy to pursue.

So, not only was the supply of rented property diminishing, but at the same time the positive advantages of owning (or buying) a property as opposed to renting one were also increasing.

More on mortgages

Nearing the end of the mortgage term

It may not seem like it now, but one of these days you're going to get near the end of your mortgage term. If you have chosen a repayment mortgage, it's worth remembering that the effective net rate of interest rises markedly in the last couple of years and so it will be in your interest to pay it off early.

When you do so, however, ask your building society manager if you can leave a nominal sum -110 or so That way, you can continue to have the deeds stored at their expense, not yours, and it will make the way easier should you ever wish to go back for a...: Nearing the end of the mortgage term

Current Mortgage Offers

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