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  • FIRST POST
    • lpegden
    • By lpegden 18th Apr 17, 2:18 PM
    • 2Posts
    • 0Thanks
    lpegden
    To mortgage or not to mortgage
    • #1
    • 18th Apr 17, 2:18 PM
    To mortgage or not to mortgage 18th Apr 17 at 2:18 PM
    Hi there

    I wonder if you could help.

    My partner and I are looking for our first home. We are in the very fortunate position of having access to £290k (two lots of inheritance + our own savings). I realize how lucky we are, but unfortunately we’re both a little clueless. We seem to have two choices:

    1) We could *just* about buy somewhere without a mortgage. This would probably involve compromising and getting something in need of some TLC and in a ‘rougher’ neighbourhood (our area of the UK is painfully expensive). The big pro being we wouldn’t have a mortgage to pay off.
    2) We could get a mortgage up to £149k – and get something ‘nicer’ (although we’re still keen for it to need some TLC). Con being that we then of course have a mortgage which will accumulate interest over the years.

    When presented with this (fortunate) choice – no mortgage or mortgage – what’s best from a business perspective?

    On the one hand, it seems obvious to avoid getting a mortgage if you can. But there seems to be another school of thought of getting the best/ biggest house you can as this is a good investment (although neither of us are interested in getting a particularly big house). Is it better to get a mortgage, with the idea being that the value of the house when you sell it will be larger than the amount you have to pay for the interest on the mortgage?

    I really appreciate your thoughts as we're both a bit bewildered by the options and need some guidance
Page 1
    • AdrianC
    • By AdrianC 18th Apr 17, 2:19 PM
    • 14,447 Posts
    • 12,769 Thanks
    AdrianC
    • #2
    • 18th Apr 17, 2:19 PM
    • #2
    • 18th Apr 17, 2:19 PM
    A house in a better area doesn't have to be bigger.

    Remember - you have to live there. This is your home, first and foremost, not an investment.
    • elverson
    • By elverson 18th Apr 17, 2:27 PM
    • 562 Posts
    • 333 Thanks
    elverson
    • #3
    • 18th Apr 17, 2:27 PM
    • #3
    • 18th Apr 17, 2:27 PM
    You could also get a personal loan for the difference - have a look at the rates.
    • Cakeguts
    • By Cakeguts 18th Apr 17, 3:57 PM
    • 2,515 Posts
    • 3,353 Thanks
    Cakeguts
    • #4
    • 18th Apr 17, 3:57 PM
    • #4
    • 18th Apr 17, 3:57 PM
    This isn't a business decision. It is a decision about buying a home. You can't get the money out of your home unless you sell it and then where to do you live? Buy a house that you want to live in.
    • Soundgirlrocks
    • By Soundgirlrocks 18th Apr 17, 4:17 PM
    • 417 Posts
    • 575 Thanks
    Soundgirlrocks
    • #5
    • 18th Apr 17, 4:17 PM
    • #5
    • 18th Apr 17, 4:17 PM
    There are compromises you could get a smaller mortgage with a shorter term, your LTV should allow you access to the best rates available. Mortgage free has its appeal but you also need to factor in your age, future earning potential etc you do need to look at the longer plan if you are 25, then having a mortgage for say 10 years isn't the same millstone round your necks as say being 40 facing a 25 year term
    • saajan_12
    • By saajan_12 18th Apr 17, 4:43 PM
    • 469 Posts
    • 295 Thanks
    saajan_12
    • #6
    • 18th Apr 17, 4:43 PM
    • #6
    • 18th Apr 17, 4:43 PM
    Is it better to get a mortgage, with the idea being that the value of the house when you sell it will be larger than the amount you have to pay for the interest on the mortgage?
    Originally posted by lpegden
    From a purely financial perspective, the comparison here would be the difference in selling price (cheap house compared to nice house) compared to the mortgage payments (capital+interest) over the years (allowing for the time value of money over the years as you only get any house value increase when you actually sell).. so what will inflation be at that time? what will house prices be? which type of house will appreciate more? sounds like only a crystal ball knows.

    However if the cheaper house isn't as suited to your needs, you could face several more significant things / costs
    - cost of moving if you later really need the bigger area/better size with family changes (-> legals, EA costs, removals, plus lots of stress!)
    - renovation cost for a 'doer upper' / time in overseeing (you can never hand everything over to builders, that time could be spend earning additional income)
    - longer commute time/cost
    - higher cost of socialising / relaxing if you don't like being at home
    ..
    • lpegden
    • By lpegden 20th Apr 17, 2:12 PM
    • 2 Posts
    • 0 Thanks
    lpegden
    • #7
    • 20th Apr 17, 2:12 PM
    • #7
    • 20th Apr 17, 2:12 PM
    Hello

    Really appreciate your response, really really helpful.

    Thank you,
    • always_sunny
    • By always_sunny 20th Apr 17, 2:22 PM
    • 2,966 Posts
    • 3,142 Thanks
    always_sunny
    • #8
    • 20th Apr 17, 2:22 PM
    • #8
    • 20th Apr 17, 2:22 PM
    it depends on your age, though if you're on the young side (under 40) getting a mortgage might be best.
    £149k is a very small mortgage, you don't have to buy a house for £439k (£290k+149k) you can find something a bit cheaper as first home.

    Honestly, what surprised me is the amount of the mortgage you could get, £149k, does it mean your combined earning is £30k a year? If so, unless you're really young (early 20s) you might be best to invest some of the inheritance money towards improving your potential earning.
    Expat with an EU passport
    • justme111
    • By justme111 20th Apr 17, 2:27 PM
    • 2,623 Posts
    • 2,523 Thanks
    justme111
    • #9
    • 20th Apr 17, 2:27 PM
    • #9
    • 20th Apr 17, 2:27 PM
    I do not think it is a good idea to compromise on area if you don't have to. So I probably would go for mortgage but would try to minimise it , not take as much as I would be given. As others pointed every move is £££ spent so I would look for something where I could live with children (if I was a part of a young couple as you probably are unless you sure you will not have any ever).
    • n217970
    • By n217970 20th Apr 17, 2:37 PM
    • 84 Posts
    • 51 Thanks
    n217970
    Mortgage - current rates it would be daft not to. Would also mean you could hold some money back out of your 290k for renovation/extension/strippers
    • Pixie5740
    • By Pixie5740 20th Apr 17, 3:24 PM
    • 10,416 Posts
    • 14,269 Thanks
    Pixie5740
    It's true what the say, "location, location, location." You can do a lot to a house but the one thing you cannot change is location.

    Moving is stressful and expensive so ideally you want to do it as few times as possible. If it were me I buy in the best area I could even if it meant taking out a mortgage. £149k mortgage with a £290k deposit is only a LTV of 34% so the mortgage would be cheap, around 1% APR.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • mysterymurdoch
    • By mysterymurdoch 20th Apr 17, 6:51 PM
    • 135 Posts
    • 97 Thanks
    mysterymurdoch
    I would absolutely ignore any thoughts of business. This ins't what your situation is about. Buy a home, one you like, one you can comfortably afford, one you can improve and enjoy.
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