This is part three of a series of blog posts where Millie argues that, given the choice, she’ll be better off financially if she spends her money on getting on the housing ladder rather than contributing to a pension. Head over to part one and then part two if you’ve not read these yet.
Over the past year (since starting a proper job with a salary I can afford to live on) I have begun to set my sights on buying a property. Admittedly, this is the millennial dream, as I discussed in part one, and at times feels fairly unrealistic *dreams of mews flat in Chelsea*. But I feel as though it is an investment that will benefit me both now and in the future, unlike a pension that will only benefit me in the future (and make me poor now), as discussed in part two.
People forget that we will all still need somewhere to live in retirement.
The prospect of buying a house to live in (we’re not talking an investment property) appeals to me because, despite having lived very cheaply for the past year as a property guardian, having a mortgage will be cheaper than both the boy and me paying rent.
I feel as though those professionals who are pushing pensions over property have forgotten that we will still need somewhere to live in retirement. One of the reasons today’s pensioners are so well off is because many own their own house and have large pensions so have high disposable incomes – savings and ISA provider Scottish Friendly has a great tool which lets you explore this. If older generations were paying rent that disposable income would drop. Therefore, as I know that however hard I try I am unlikely to have a large pension pot, surely it makes sense for me to ensure as much of what I do have is disposable income by owning my own home?
At the moment we both live in small rooms in shared houses in London which between us costs over £1200pm. If we chose to rent a place together we would be looking at spending about the same for a one bed flat. Over a year this is almost £15,000 we are spending on having a less than amazing roof over our heads. By buying we would be paying around £950 per month on a two bedroom flat and that £15k would be going towards something and in approximately 30 years it would be all ours. Plus, we would also have the option of renting out the second room if things got tight. We *could* also put that extra cash we’re saving by not renting into a pension… we probably won’t to be fair but we could.
I am extremely lucky to know that buying a house is achievable for me without endless years of saving as sadly I grew up without grandparents and my parents kindly set aside a chunk of money to help my sister and me with grown up things. This means I am able to purchase much earlier than I otherwise would and before I even think about starting a family, which inevitably makes saving harder.
I’m lucky. My parents kindly set aside a chunk of money to help my sister and me.
Of course, I understand that buying is a risk, house prices are inflated and Brexit isn’t helping things. But I have my eye on a Crossrail location, have set up my help to buy ISA and will take advantage of the government’s scheme which places 20% of the risk with them. I also know that if I purchase a £300k property and it decreases in value by 10% over five years then I’m down £30k, but there’s also a chance that it will grow in value. However, if the boy and I continued to rent over that same five year period we would have paid £75k in rent – that’s money we’re never getting back. Obviously there are other costs associated with buying such as stamp duty, legal fees, interest on the mortgage etc but there are also perks such as not having to move every six months (vans are expensive!), rents suddenly going up and estate agent fees.
Buying reduces my living costs in the future.
Overall, I believe that buying will allow me to live in a nice property for less money than if I was renting, which benefits me now and could help reduce my living costs in the future.
So my conclusion for this series? I’m choosing property for now as I feel that buying a property over investing in a pension is the better option for me.
Keep your eyes peeled for my adventures breaking into the housing market!