To buy or rent

mh8782

Hello, I have a housing dilemma, and I'd like your thoughts on this. I'll try and include all the relevant information

I'm 31, single, and earn £29k per year, and live in South West England. After pension and student loan deductions, I take home £1650 per month. I have £25k in savings. I don't have a car and living expenses are generally quite low.

I've been house sharing, paying around £400 including bills but I'm about to be made homeless (yet again). I have three options as I see it

1) Go for another houseshare (£400 per month)
2) Rent a one-bed flat (approx 600 plus bills)
3) Buy a two bed flat/house

Each has pros and cons.

1) House-sharing is cheap, but I'm getting tired of it.
2) Renting a one-bed flat, is in my opinion, ridiculously expensive, and I could end up paying half of my salary in rent and bills. However, it would be good experience as to whether I could manage my money (akin to a mortgage)
3) Buying would result in similar mortgage payments to the rent (assuming a 110 to 120k mortage), so at least I'd be building up equity. However, in the short term, house prices may drop and so I end up losing my deposit, and there are fixed costs to buying.

I know my job is guaranteed until April 2014 (so I might have to move afterwards).

What would you do in my situation?

evoke

How much can you afford to pay out for a mortgage now and when interest rates rise to 6%? A lot of people are going to lose their homes over the next few years because they've maxed out their mortgages at today's mortgage rates. Be careful of being able to afford a mortgage today!

mh8782

evoke,

Thanks for your advice. It's difficult as there's so much uncertainty over buying - doing some calcs, a £115k mortage over 25 years = £613 @ 4%, doable

However, if the rates went up

5% = £679
6% = £749
7% = £822
8% = £897

I reckon that at 7%, it'd start to hurt. My worry is that if I never make the jump, I'll always be in this position, scared to make the first jump. Of course, if I was in a couple, etc, my situation would be different, which raises the question should I wait? In a year, my situation may be very different

evoke

It's good you've done the sums. House-buying is a very expensive business and, given the current state of the market, you'd need to be in it for the long-term (I would guess >5 years at least).

Having said that, there's no substitute for owning your own house if you are able to do so.

Plan in council tax as that can take a fair chunk out of your monthly cash. Plan for solicitors fees during the purchase too.

Good luck, I hope you can make it work!

SAMMYE_2

Its not going to go up to 6% in the next few years.

mh8782

On that basis, does buying ultimately make more sense? I'm a bit of a worrier, and don't want to be either reckless, or hanging around on the edge of the market for ever

evoke

SAMMYE wrote: »

Its not going to go up to 6% in the next few years.

LOL. Is that a fact or a hope? I think you're giving bad advice that is financially irresponsible.

Anyone contemplating a mortgage should assume the worst, IMO.

Mrs_Z

Well, ultimately it is your decision of course, depending what's important to you - peace & quiet or cheap living... different compromises in both.

Well, if you've managed to save £25k deposit, then you must be doing something right as far as money management is concerned.

If you got a 2 bed flat/house, you could always rent out the spare bedroom if times got tough? That's what we thought when we took the plunge. Never looked back since.

ruggedtoast

Considering you can get a five year fix now for 3.5% (subject to eligibility) its certainly possible to predict your mortgage rate over years.

In any case I would advise against borrowing on a joint income ideally. If you manage what you can afford alone and have someone else to help you then all well and good; if you max out as a couple and then one loses their job you can hit real difficulties.

thegirlintheattic

Cheaper buying a house now if you can rather than waiting till prices go up. It's a buyers market.

sunshinetours

If you are thinking of moving is 2.5 years time I would seriously consider renting and continue to save like crazy and then buy in 2014 with a bigger depoist and possibly smaller mortgage. You do have to weigh up the additional costs of buying selling now and in 2.5 years although you may not be affected by stamp duty which helps

however if you can get a good mortgage rate espeically fixed for 5 years as above do consider that as overall costs of borrowing may not get better than that