Is Buying a House A Good Investment in 2024(UK)?

Owning a home is one of the most common goals for all Brits. After all, it’s the British dream right? And not just that—it’s also a great financial investment…right?

Well, it’s complicated. While there are plenty of perfectly logical and admirable reasons for wanting to buy a home, there are also a lot of downsides, and even more misinformation about the potential benefits of homeownership.

In this article, we’ll go over some of the most common reasons people give for buying homes, discuss the quality of the current real estate market, compare and contrast renting and owning a home, and give you a useful list of things to consider before you take the plunge into homeownership.

But before we get to all that, we need to offer one potentially disappointing disclaimer: despite the title of this article, we will not be offering a simple yes or no answer to the question is buying a house a good investment?

Instead, we want this article to be a starting point for your process of determining whether buying a home is the right decision for you. There are simply too many complicated variables—many of them unique to each individual—to confidently provide a definitive answer.

So, while this article may not provide you with all the answers you’re searching for, it will definitely give you the right questions to ask in order to find the answers for yourself. Let’s get started!

Why Do People Buy Homes?

As we mentioned above, there are loads of reasons that people might want to purchase a home. In this section, we’ll take a look at some of the most common reasons that current, past, and potential future homeowners give.

1. Because It’s the British Dream (a.k.a. Because “They” Say I Should)

While this reason for buying property is beginning to go out of style with younger generations, it’s still one of the primary reasons people give for purchasing or wanting to purchase their own home.

Most of us grew up with the idea that, to truly achieve the dream, you have to own your own home. It comes from that sense of individualism, and it has pervaded our culture for decades.

The prominence of the idea really took off in the 1950s.

As soldiers were returning from the wars in Europe and the Pacific, many were granted low-interest home loans through the GI Bill.

The effect was thousands of new homeowners and the birth of suburbia.

More importantly, you should never make a hugely consequential financial decision based solely on what “they” (that includes us!) say is the thing you “should do”.

Unless owning a home is a profoundly important goal for you, don’t let dreamy notions of what it “means” to own a home influence your decision too much.

2. Because It Will Provide Stability to Raise a Family

When some people answer yes! to the question is buying a house worth it, their certainty comes from their conviction that owning a home provides a sense of stability and a reliable foundation on which to build a family.

But this one might be a little more complicated than you think. Certainly, owning your own home does give you a sense of rootedness in a particular place. Indeed, when most people buy a home, they put tons of time into finding a place that has good schools, is safe, and a sense of community. Thus, buying a house can definitely make it easier to see your residence like a real home, rather than just a place to live.

But this isn’t exactly the whole story. With homeownership comes a great deal of other responsibilities—not to mention expenses!

While owning a home can be a great source of stability for those who are prepared and mature enough for the significantly increase in responsibility, it can just as easily become a weight around the neck for those who aren’t ready, financially or otherwise.

3. Because It Gives You Complete Control Over Your Living Space

We cannot deny that this point has a major appeal, and for good reason. If you’ve ever been a renter, you know how frustrating it can be when you want to make changes to your living space but your landlord doesn’t exactly share your vision.

Even more obnoxious is having to wait for your landlord to get around to fixing that leaky faucet or broken air conditioner.

Indeed, it is absolutely true that owning your own home makes you, in some sense, the master of your own personal kingdom. But, as with everything in life, there are tradeoffs.

We’ll go over those in some detail further on in this article.

For now, all we can say is yes, having control over your residence and what you do with it is a major benefit of homeownership, and it should not be discounted by anyone weighing their options between renting and buying a home.

But we’re not really here to discuss all of these ancillary reasons for buying a home; we’re here to talk about whether real estate is a good investment.

So let’s move on to that hotly debated topic now.

4. Because It’s a Financial Investment

Ah, but here’s the big one. We’ve saved the most important reason for last, both because it’s one of the most common reasons given for homeownership and because it’s the most misunderstood.

Is buying a home a financial investment? Well, yes—almost by definition. But that’s not what we’re really concerned with here. The real question we ought to ask is this: is real estate a good investment?

Like we’ve said already, there’s no simple, definitive answer that is right for everyone. We all have different financial situations, relationships, career goals, long-term plans, and family arrangements.

Indeed, to really determine whether buying a house is worth it from a financial standpoint, there are many things you need to take into account. We’ll take a detailed look at each one in this next section.

Read More: The Real Reason Why Millenials Aren’t Buying Homes Anymore

Factors to Consider Before Buying a Home

Now that we’ve considered some of the more personal reasons for wanting to buy a home, it’s time to get down to brass tacks. If you really want to know if buying a house is a good investment financially, you need to consider the following things, in no particular order.

Location Risk

This is something many homeowners overlook when considering the potential pitfalls of purchasing a home. While that picture-perfect neighbourhood might seem like a kind of Eden when you take out that home loan, things can change in a hurry.

For instance, what do you think will happen to the value of your real estate investment if the largest employer in the area suddenly goes out of business or starts exporting jobs overseas (here’s lookin’ at you, green belt)? In time, it can diminish significantly.

Liquidity

Liquidity is one of the most important things to consider if you are looking at buying a home as a financial investment. What is liquidity? Simply put, liquidity refers to the ease and speed with which you can sell (or, liquidate) an asset.

But why is this important? It’s only important if you expect your home to be a quick source of cash in the short-term. This is because real estate is an extremely illiquid asset, meaning it can be a very difficult asset to sell quickly. After all, how often do you hear about people who have spend month or even years trying to sell a home?

So, if you want to invest in real estate for fast money, you might want to think again.

Return on Investment

The return on investment is likely the most important thing to think about when deciding if real estate is a good investment for you. This is where your long-term goals and expectations come into play. That is, what do you hope to get out of this investment?

The unfortunate truth is that, compared to other forms of investment like the stock market, the return on investment for homeownership are mediocre at best, meagre at worst.

Some of the most recent data show that home prices showed an annual gain of 6.2% in 2018. Now, compare that to the 12% tumble of the FTSE 100 in 2018.

Indeed, some even suggest that home equity typically just stays on pace with the rate of inflation, leaving returns on investment at essentially zero. This, of course, is probably an exaggeration.

But the bottom line is that, if you want to make a lot of money with your investments, you might not want to try doing it by investing in property… but you will have a home, you can call your own.

How Long Do You Expect to Stay in a Home?

With regard to timing, a good rule of thumb is that buying a house is worth it if you plan to stay in it for at least five years; although, it’s even better if you can commit to living there anywhere from seven to ten years to get the most return on your investment.

So, where do you see yourself in five to ten years? If it’s not in that new home you’re imagining, buying property might not be the smartest move for you.

Is It a Good Time to Buy a House?

It’s the question on the lips of every would-be homeowner: is now a good time to buy a house?

Well, if you ask most Brits, the answer is a resounding NO. While a majority of Brits still think it is a good time to buy, it’s a slim majority.

But that’s only one way to look at it.

If there’s one thing we’ve been trying to drive home, it’s that buying a home is a very personal decision that should be based almost entirely on your own personal and financial situation.

Is right now a good time to buy? Yes. No. Maybe. The truth is, even the experts don’t know for sure.

The bottom line is that it is the right time for you to buy a house if you’re ready and it’s something you really want to do. 

The housing market, like every other market, has it’s ups and downs, both of which are nearly impossible for most of us (if not all of us!) to predict.

If owning a home is a goal for you, and you’ve planned accordingly, and you’ve done your research, then of course it’s a good time to buy a home!

Just be sure you set goals, prepare and plan, and know with certainty what you’re getting into, and you’ll come out just fine.

How Much Money Do I Need to Buy a House?

Finally! An easy question…kind of.

If you’ve decided that you do, in fact, want to be a homeowner, it’s not too difficult to determine how much money you need to buy a house.

It’s simply a matter of determining your preferences and requirements, setting clear goals, doing the research, and yes, saving!

If you fancy diving a bit deeper, Lumio has teamed up with the UK’s no.1 mortgage adviser – London & Country – to provide our readers with access fee free mortgage advice. Check it out here.

Here are just some of the things you need to factor in when calculating how much money you need to buy a house.

The deposit

The amount of money you need to save for a deposit payment on a home depends on a few things: mainly, the total cost of the home and the type of loan you are getting.

That said, most experts agree that, ideally, you should be able to put down a deposit of 20% of the cost of the home upfront. London & country can help you work that out – as above.

Mortgage Insurance Payment

Be sure to budget for mortgage insurance. Typically, the cost of mortgage insurance is around 1% of the amount of the loan.

Costs of Appraisal and Inspection

Before you close that deal on a new home, you’ll want to get both an appraisal of the home from a surveyor which will cost anything from £400-£1500 depending on how thorough you want the survey to be.

The basic survey could be seriously basic.

We’re talking man or woman with a clipboard standing in the front garden ticking boxes. A more serious survey will have the surveyor diving into cellars to check damp and really provide you with some peace of mind.

What Are the Benefits of Renting a Home?

Now that we’ve gone through all that, we thought it might be wise to show the other side of the coin: the benefits of renting.

If there is one thing that best describes the benefits of renting a home, it’s clearly the complete lack of all of the responsibilities and obligations of homeownership.

Sure, that monthly rent payment isn’t going toward any investment purposes, but at least you don’t have to replace your own broken hot water heater (just one among many, many, many things that renters don’t have to deal with—and pay for!).

Another great perk of renting is the freedom to move.

When you own your own home, in many cases, you’re stuck there for the foreseeable future. But as a renter, you can basically move anytime and anywhere you want with little to no penalty.

But the reason many people rent? Buying a home costs a lot of money, and many of us just aren’t financially ready. And that’s perfectly fine. If you take away only one thing from this article, it’s that patience and planning are the keys to success in every endeavor, financial and otherwise.

Sources

“Liquidity (or Marketability)” Investor.gov – https://www.investor.gov/additional-resources/general-resources/glossary/liquidity-or-marketability

“Why Buying a Home Is Not a Good Investment (It’s a Service)” Forbes – https://www.forbes.com/sites/jamiehopkins/2018/07/28/housing-is-not-a-good-investment-its-a-service/ – 3cce9af85c9d

“When Is Buying a Home a Good Investment?” US News – https://money.usnews.com/investing/articles/2017-05-10/when-is-buying-a-home-a-good-investment

“Fewer in U.S. Say It Is a Good Time to Buy a House” Gallup – https://news.gallup.com/poll/249206/fewer-say-good-time-buy-house.aspx

“Common Questions from First-Time Homebuyers” HUD – https://www.hud.gov/topics/common_questions