Home Owner Independence
Being an owner occupier is the aspiration of many people.
There are several ways to become an owner occupier, the most common of which is to buy a property using a mortgage. However, there are other alternatives that can reduce or remove the need for a mortgage.
One is to buy a run-down property, improve it, live in it for a while and then move on. Under certain conditions, there can be significant tax benefits for owner occupiers in improving their property (eg: in the UK, exemption from Capital Gains Tax). If owner occupiers do this a few times, they may be able to make enough capital gains to then purchase the type of property they want with a reduced or no mortgage.
Another option is to buy a piece of land, build a home from scratch, live in it for a while and then move on. But this is only economic where land is plentiful; if land is in short supply, undeveloped building plots can be in such demand, and so expensive, that building can cost more than purchasing an existing house.
A third option is to buy a house that has some land attached. Then, subject to planning permission, you build a house on that additional land and move into it, selling the original house. This can be risky as a strategy depending on planning policies and the attitude of neighbours to your development.
Buying, building or developing your own home has long been regarded as a good investment in the long term.
Robert is a computer programmer in his mid twenties, and is aiming to be mortgage-free by the time he decides to "settle down", which he thinks will be sometime in his thirties.
He had saved some money to buy a semi-detached house in a popular residential area. He was granted planning permission to convert it into two flats and carried out all the conversion work himself, in his spare time. Initially, he lived in one flat and rented the other for a fixed term (1 year). However, he has now sold the first flat and moved into the second himself. This has reduced tax liability, paid off the original mortgage and he is now in the process of selling the second flat.
Even after the sale, he will still be well short of his target to be "mortgage free". He is therefore planning to buy and convert another house, and thinks he may even need to convert a third before he has enough capital to buy the type of house he wants.
Your mortgage, and any improvements you carry out, contribute to a building of equity which can at the very least give you cheap/free accommodation in later years, or perhaps even provide you with significant funds for your retirement (eg: if you sell your home and move to something smaller/cheaper).
When you are an owner-occupier, there are several other advantages, such as:
- you can change or modify your property, without the need to consult the landlord (but you may need to consult the authorities for planning permission or building regulations)
- there are often significant tax advantages (eg: in the UK, exemption from Capital Gains Tax under certain conditions)
- owning your own home can make future borrowing easier and cheaper, enabling you to obtain secured loans, and improving your credit score, useful when applying for unsecured loans.
If you are the owner occupier, you have responsibility for the maintenance of the property and all associated costs. You also bear the risk of property values going up and down and/or structural problems occurring (though some potential problems can be mitigated through insurance). Your costs may also fluctuate in line with interest rates or property tax changes.
Purchasing a home usually requires a substantial deposit, and can be an expensive and protracted exercise. For example, in the UK stamp duty is added to the value of the house (if over a certain value), there may be mortgage fees, you have to pay a surveying to examine the structure of the house, etc..
Home purchase can also be inflexible. In order to move you need to sell your house which can sometimes take a very long time in difficult market conditions.