opinions please, which is better?

Brallaqueen

Hi everyone,

I'm a FTB, single income approx £18K and thanks to my IFA I have secured a loan for £75k for a two bed flat with garage. It's ex-council and a bit dated, but the area is OK (best I could afford).

I'm trying to plan ahead a little bit and would appreciate any insight into my situation.

My mortgage is a monster at 7.29%, fixed for three years. My repayments will be £450, and I'd ideally like to move on when my fixed term is up.

The question I have is - would I be better off

A) over paying my mortgage by £50 a month (~£1,800 over three years, assuming regular payments)

or

putting that £50 a month towards improving the flat - a white bathroom suite would not go amiss?

Can anyone offer their expertise with this?

poppysarah

Move in three years? Then just rent.

Colincbayley

Kitchens and Bathrooms add value to property.

Brallaqueen

poppysarah wrote: »

Move in three years? Then just rent.

Hi poppysarah - the recent price drops gave the opportunity to get a foothold on the property ladder, which wasn't available to me before now (I love my job, but the wage is not great). Renting seemed silly when prices were finally within my reach. The compromise was the flat is far away from family and work.

What do you feel would be the better option - pay off some of the mortgage or spend money doing the flat up?

poppysarah

Kitchens and bathrooms only add value in a rising market.

What if prices drop and then in 3 years when you want to move you can't and all the magnolia in the world isn't going to sell it?

Do you have a deposit saved?

If renting is cheaper than buying and doing up, why would you? Unless you're banking on being able to sell for a profit.
It is possible you buy the flat, spend lots of money doing it up over three years and then can't sell it. I spose you'll have a nice flat.

planning303

If your IFA has got you a mortgage in principle i'm going to assume you've got a 7.5k deposit, so you're loans only actually 67.5K. or have you already accounted for the deposit in the figures?

overandout_2

Personally, I would invest into a kitchen or a bathroom. It definitely adds value - even in a falling market.

I recently bought a house a bit cheaper than the surrounding area. This is because the kitchen was outdated, carpets were dingy - but knowing that even in this current market, once I have done it up, it will worth more than what I bought it at. Granted I wouldn't earn a lot from what I invested into (bought a new kitchen and have flooring done to it), but it was never my intention to earn a lot from it. I want to enjoy my house but once I decide to sell in 5 years time, I haven't lost money on it And I get to enjoy the kitchen and flooring in the meantime

Brallaqueen

Thanks poppysarah, you've given me something to think about. All my saving have gone on buying this flat.

I don't HAVE to move in three years, and if my budget planning is on spec I'll have £50 a month to save. Just wondering what would be the most sensible way of using that £50

laughingcow81

I would overpay, especially if the current bathroom and state of the place is generally ok to live in.

You could make small and cheap cosmetic changes, whilst seeing if your financial situation improves (i.e. getting a promotion / better job / win lottery).

Brallaqueen

liggins wrote: »

If your IFA has got you a mortgage in principle i'm going to assume you've got a 7.5k deposit, so you're loans only actually 67.5K. or have you already accounted for the deposit in the figures?

Liggins - i think so. Basically my mortgage agreement states £450 per month for the mortgage so I'm going on that??

princeofpounds

At a blisteringly high mortgage rate of 7.3% you will almost certainly be better off paying down mortgage than investing in some bathroom, as long as the current one is functional.

Home 'improvements' do not add a great deal of value unless they correct something functionally deficient or seriously disgusting, because there is no guarantee that the prospective purchaser will share the same tastes and there is no reason they could not do exactly the same thing themselves.

On the other hand investing money at a 7.3% rate of return in the current environment tax-free (which is what repayment is an equivalent of) is a wonderful and risk-free (in terms of investment returns) opportunity.