Financial Planning for Year 12 and 13 - Property Insights and Decision-making

Preparing for my financial future This session is aimed at key stage five (recommended for Year 12 and 13)

Unit outline 2 Session 1 Session 2 Session 3 Session 4 Session 5 Session 6 Decision- Making Financial literacy in the curriculum Managing Student Finance Borrowing and Debt Property - Renting and Buying Cryptocurrency Risk and Reward Money and Wellbeing

Having a respectful learning environment 3 We will listen to each other respectfully We will avoid making judgements or assumptions about others We will comment on what has been said, not the person who has said it We won t put anyone on the spot and we have the right to pass We will not share personal stories or ask personal questions

4 Session 3: Renting and buying property

5 By the end of the session, I will be able to: Describe the advantages and disadvantages of renting and buying Explain different elements of the renting and buying processes Assess whether renting or buying might be better in some situations compared to others

Starter - property payments 6 Average monthly rent Average monthly rent Average house price Average house price What do you think are the average rental and purchase prices for property in England and London? England England 800 800 per month per month 294,000 294,000 Discuss why you ve come to these figures with your partner. London London 1,475 1,475 per month per month 542,000 542,000 House prices correct as of Dec 2022 Rental prices correct as of Sept 2022 Source: Land Registry for house prices and ONS for rental prices

To rent or to buy? 7 One of the biggest expenses in somebody s future will be housing, whether paying rent or buying a home and repaying a mortgage. Word bank Council tax - a tax on households to be paid to local authorities in Britain Credit score - a number showing somebody s ability to pay back a loan. A higher number shows a better chance of repaying Deposit - sum of money paid upfront Flexibility - not being stuck to one place Furniture and design - there is more scope for designing lots of elements for homeowners Insurance - involves paying an amount of money (known as a premium) to an insurance company in return for a promise that the insurance company will pay a larger sum of money if a bad event happens Investment - value of something growing over time Mortgage - a loan from a bank for a property that needs to be paid back monthly with interest Landlord - owner of the rental property Legal fees - money paid to lawyers Stamp duty - a tax on buying a property costing over 250,000 or over 425,000 for first-time buyers. Tenant - somebody who rents Utility bills - bills for heating, water, electricity Karim is looking to rent an apartment in Manchester. Lucy is looking to buy her first home in Leeds. Activity - With the class divided into 2 groups, identify advantages and disadvantages of Karim renting and Lucy buying. Use the key terms in the Word bank where possible to help you. Renting Buying Advantages Disadvantages Word Bank printout available

Karim is looking to rent an apartment 8 Advantages of renting Disadvantages of renting Offers more flexibility than buying, as the contract can be cancelled, within reason To an extent a renter is not in control of what the landlord does e.g. the landlord may decide to sell the property (with a period of notice) or increase the rent (within a certain parameter) Can be a good way for couples of friends to live together without committing to a property A renter is restricted in terms of making interior alterations and decoration/ design Identify advantages and disadvantages of renting If someone is on a lower budget, it can be much cheaper than buying in some areas; especially if sharing a flat You may wish to research the landlord (e.g. on rating sites) and examine the property before committing to pay rent, as some landlords may be more helpful and better suited to your needs than others. The landlord has responsibility for fixing things when they go wrong Tenants have legal rights protecting them against unfair eviction or rent

Lucy is looking to buy a home 9 Advantages of buying Disadvantages of buying For those that can afford it, buying offers the opportunity to grow capital (money) Buying often requires a mortgage. A mortgage is a loan from the bank, usually lent across a 20- to 30- year period and paid back in monthly installments. When interest rates are high, mortgage repayments may be high This is because often the value of a property rises over time and buying a property can be seen as an investment If mortgage payments can t be paid, the property can be repossessed meaning the owner needs to leave the property. Not paying mortgage repayments in time leads to decreases in credit scores A homeowner (within reason) is not limited to how they decorate/ design their space Identify advantages and disadvantages of buying No need to deal with landlords and unpredictability of rents increasing unexpectedly It s expensive to buy and sell a property, so one usually needs to commit to living in a purchased property for a longer period of time Can be associated with a positive sense of well-being There s no guarantee the value of the property will go up. If, for example, an area becomes prone to flooding, the value may decrease Costs of repairs and maintenance need be paid by the owner

Social housing 10 Social housing is an alternative to renting from a private landlord A social housing association rents properties to tenants at affordable rates The landlord is usually the local council or housing association However, waiting lists can be long for social housing as there is a lot of demand There s also not much choice about the location and type of property, as it depends on availability and priority People may be prioritised if they are homeless, fleeing violence, or have a disability

11 By the end of the session, I will be able to: Describe the advantages and disadvantages of renting and buying Explain different elements of the renting and buying processes Assess whether renting or buying might be better in some situations compared to others

The process of renting and buying 12 Karim is looking to rent an apartment in Manchester. Lucy is looking to buy her first home in Leeds. They want to support each other and wonder how similar or different the processes will be. We are going to walk through 7 aspects of the renting/buying process. Show thumbs up for parts of the process that are the same , and thumbs down for different . Fill in your worksheet as we work through the different aspects of the process. Resource 1 - Buying vs renting property

The same or different? 13 Explanation box Searching for a rental property works in a very similar way to searching for properties to buy. Rightmove is the most popular site for searching for properties and lists most of the properties on the market in the UK. Will Lucy and Karim have to go through a process of searching for a property? a shortlist of properties they are interested in, before calling an estate agent responsible for the property in order to book viewings. 1. Searching for a property In general, people tend to search online and create SAME

The same or different? 14 Explanation box Making an offer also happens in a similar way for renting and buying. For each, you ll be asked to make a formal offer in writing that details the amount you are willing to pay. Will Lucy and Karim have to make an offer to acquire their property? Some estate agents require you to fill in an application form. 2. Making an offer An offer can be accepted or rejected SAME

The same or different? 15 Explanation box A deposit (initial sum of money put into a bank account) will need to be made whether renting or buying. Deposits are generally higher when buying a property but it will depend on the value of the property. Will Lucy and Karim need to put a deposit down? paid*. For rentals, a deposit gives the landlord (property owner) security in case there s damage to the property or rent isn t 3. Putting down a deposit When purchasing a property, a deposit is the amount of money paid upfront that goes towards the full cost of the property. There are different types of deposits needed for renting vs buying. SAME *There are some individual cases where deposits are not paid on rentals

Optional | Renting or buying deposit? 16 For each deposit type, use mini-whiteboards or hands up to show whether the deposit is for renting or buying. (B) Mortgage Deposit This is the amount that you save up to put towards getting a home Your mortgage deposit plus the amount you borrow in your mortgage, will equal the value of your home Isn t a true deposit, just money that goes towards a purchase (A) Holding Deposit Paid to reserve a property Cannot be more than 1 week s rent Refunded to you unless you decide not to follow through on the property, or give misleading information Renting Buying (C) Exchange Deposit Transfers to the seller when you exchange contracts before the deal is completed Secures the property as yours It s usually 10% of the property value In practice, you ll use part (or all) of your mortgage deposit as your exchange deposit (D) Security Deposit Used as security for the landlord against non-payment, damage etc. Usually cannot be more that 5 weeks rent if your rent is under 4,167 p/m Must be held in a deposit protection scheme Renting Buying

The same or different? 17 Explanation box Stamp duty is paid on the purchase of a house costing over 250,000, or 425,000 for first-time buyers, but not on rentals. These are the rates for homes with different values: Will Lucy and Karim have to pay stamp duty? 4. Paying stamp duty A land tax that is paid when purchasing a property in England or Northern Ireland. If someone is buying a second home, they need to pay a 3% surcharge on the stamp duty on the purchase price of the new home. DIFFERENT You can calculate stamp duty on different priced properties through this online calculator.

The same or different? 18 Explanation box Lucy will likely get a mortgage. A mortgage is a loan taken out to buy a home. It involves making monthly repayments with interest. Might Lucy and Karim need to get a mortgage? homeowner owns 100% of the property. It generally takes about 25 years to pay off a mortgage. 5. Getting a mortgage Once the mortgage has been paid off, the Karim, as a renter, will not need to take out a mortgage. DIFFERENT

Time for some stats 19 What do you think the average mortgage size is in the UK? A B C D 3,500 112,000 198,000 367,000

Time for some stats 20 What do you think the average mortgage size is in the UK? A B C D 3,500 112,000 198,000 367,000 The average house price in the UK, as of December 2022, is 294,329 (Land Registry)

The same or different? 21 Explanation box For renters, landlords are responsible for maintaining the structure/exterior of the property, so tenants do not need to organise buildings insurance. While it is recommended, buildings insurance is not a legal requirement, so landlords do not have to provide it. Will Lucy and Karim need to get insurance? content of the home is not the landlord s responsibility. Tenants may wish to organise contents insurance, as the 6. Getting insurance Homeowners are not legally obliged to take out any form of home insurance, however mortgage lenders often require buildings insurance as a condition of the loan. DIFFERENT

The same or different? 22 Explanation box Utility bills work in a similar way when renting or buying, so Lucy and Karim will need to pay them. Unless otherwise stated, the resident of the property is usually responsible for dealing with utility bills including gas, electricity, water and an internet connection. Will Lucy and Karim need to pay utility bills? bills if the property has a water meter. Gas and electricity bills depend upon usage, as do water 7. Paying utility bills Internet is usually charged at a flat fee per month and depends on the speed of connection. Some landlords may offer bills included in the rent, but Karim and Lucy need to identify which bills are included. It s usually the case that this is reflected in slightly higher rent. SAME

Time for a chat 23 Karim is looking to rent an apartment in Manchester. Lucy is looking to buy her first home in Leeds. In pairs, one of you will be Karim and one of you will be Lucy. Discuss which aspects of the process will be the same and which will be different. Emphasise the aspects of the renting/buying process you think it s important for the other person to be aware of and do more research on. Stretch - Are there any other steps to the renting and/or buying process that you can think of?

24 By the end of the session, I will be able to: Describe the advantages and disadvantages of renting and buying Explain different elements of the renting and buying processes Assess whether renting or buying might be better in some situations compared to others

Case Studies 25 You ll be presented with case studies highlighting the circumstances of two people With your partner, draw out points from each case study that suggest why renting or buying may be more appropriate for that person. Explain why you ve chosen those points.

Should Daniel consider renting or ownership? 26 My partner and I moved to London recently for work purposes, having finished university 2 years ago. We re still getting used to the area. We re considering buying a flat, but we re not sure if our 40,000 in savings between us will be enough to get what we d like. I m not particularly good or interested in DIY, and I don t have the time to be spending my weekends fixing things around the house. Coming from Leeds, we haven t brought much furniture down. I also hear that interest rates will likely be coming down further in the next couple of years, which I m hoping will lower mortgage payments. We re hoping to start a family in about 5 years.

Should they consider renting or buying? 27 My partner and I moved to London recently for work purposes, having finished university 2 years ago. We re still getting used to the area. We re considering buying a flat, but we re not sure if our 40,000 in savings between us will be enough to get what we d like. I m not particularly good or interested in DIY, and I don t have the time to be spending my weekends fixing things around the house. Coming from Leeds, we haven t brought much furniture down. I also hear that interest rates will likely be coming down further in the next couple of years, which I m hoping will lower mortgage payments. We re hoping to start a family in the next 2-3 years.

Should Alia consider renting or ownership? 28 I grew up in Reading but have spent the last 10 years of my life working in London. I ve rented a few different places in London but none have felt like home. I m now ready, with my partner, to find a home that I can renovate and design myself and I d like a small garden. I m happy to move out of London to somewhere more quiet and with more green space. Through my twenties and early thirties I worked very hard and was able to save about 20% of my monthly take home pay*. I ve been reading that house prices have started to fall in recent months at the same time as interest rates have fallen - meaning my mortgage repayments would be feasible on a 200,000 house. I ve also consistently paid back any loans and paid rent on time, contributing to my good credit score**. *Take home pay is income after deductions such as tax, student loan repayments and pension contributions. ** Credit score is a numerical rating showing the likelihood of someone meeting their financial obligations e.g. paying back a loan. Learn more here.

Should Alia consider renting or ownership? 29 I grew up in Reading but have spent the last 10 years of my life working in London. I ve rented a few different places in London but none have felt like home. I m now ready, with my partner, to find a home that I can refurbish and design myself and I d like a small garden. I m happy to move out of London to somewhere more quiet and with more green space. Through my twenties and early thirties I worked very hard and was able to save about 20% of my monthly take home pay. I ve been reading that house prices have started to fall in recent months at the same time as interest rates have fallen - meaning my mortgage repayments would be feasible on a 200,000 house. I ve also consistently paid back any loans and paid my rent on time, contributing to my good credit score.

Debate 30 Lucy says: Buying property is always better than renting Activity You will be divided into 2 groups to debate the motion. In pairs you have 5 minutes to prepare your piece before engaging in a class debate.

31 By the end of the session, I will be able to: Describe the advantages and disadvantages of renting and buying Explain different elements of the renting and buying processes Assess whether renting or buying might be better in some situations compared to others

Optional | Learning Review 32 What s the difference between insurance needed for renting and buying? What 3 pieces of advice would you give someone before they choose to buy a house? What is meant by the term deposit ? How will you use what you have learnt in your daily life?

33 Any questions? Any questions? ?

33 Services available for people who have concerns about their personal finances Citizens Advice Debt and Money This resource contains links to advice on a number of topics, including financial difficulties, cost of living and communicating with creditors. Childline Helpline 0800 1111 National Debtline Debt and Money a debt advice charity run by the Money Advice Trust, offering a free and confidential debt advice service. At school, you can speak with an adult you trust. This could be your form tutor, head of year or the school s safeguarding officer.