20% equity and savings for potential doom, or 25% and less loan?

pph

First time buyer / silly question alert, apologies in advance.

I imagine the answer is that this is a very personal question, and all comes down to how my g/f and I assess risk to our jobs in this day and age. Anyway, 2 options I am considering:

(a) We can afford 25% equity but that clears us out of savings entirely. I reckon I have a minimum of one year’s guaranteed work in my company / industry and I could save 1 year’s mortgage from my salary in that time to stick in the bank so if after one year the world does go down the tubes and I am redundant, I can still look for jobs within my chosen career rather than be forced into something immediately.

(b) We could be super careful and only put down 20% deposit and have a year’s worth of mortgage in the bank (@ 3% interest which wouldn’t be a million miles from the mortgage rate?) just in case apocalypse happens sooner than I think.:eek:

Quite positive aren’t I?

Anyway, I understand that ultimately it comes down to how shakey I think my / our jobs are, but is there any reason I am not seeing that either option (a) or (b) would be a mistake?

dimbo61

You get better deals with 25% deposit and if you took a long term view IE most mortgages are 25/30 years and went for a 5 year fix you would have security for some time to come.
but I know nothing about you and your G/F so cant say what is best.
Maybe time to see a " whole of market broker" as this is a HUGE decision to make on your own

pph

Hi there, yes indeed you get a better deal. But I am thinking that for the difference in monthly repayments between 20-25% LTV, the security of having a year's worth of mortgage in the bank would be good.

Then, in 2/3 years when the economy picks up, I can take the money out of savings and when I get the next mortgage if I feel more secure I can have a lower LTV.

As I say, as the 5% difference I am talking about would be in a savings account roughly equivalent to the mortgage rate, it just provides that safety blanket at not that much more cost per month.

(p.s. my base assumption is that interest rates won't go up for another year, and after that they'll go up 1% per year for the next two or three years - just my guess:))

hcb42

i would keep a bit of savings personally, but that's not a recommendation

pph

hcb42 wrote: »

but that's not a recommendation

Indeed I understand it's very difficult when you don't know my personal situation. I'm pretty sure I have a year's salary to come but looking at redundancies in the public sector, BAE systems, banks and other "secure" industries I am nervy about the future (who isn't?).

ATM I think I am erring on the side of some savings.... the difference in monthly payments is quite minimal really (£75 a month) but means a big safety net.

And as the money sits in savings so can be used as equity when the economy recovers it isn't doing nothing / being spent.

I don't know, I just want to make sure I am not missing something better than a lower monthly repayment by putting in as much equity as possible?

pph

OK, so if no serious "school boy error" mistake being made, I'll put down 20% and keep the other 5% in case we get made redundant.

Any last words from anyone before I sign on the dotted line?

Morgage_Confused

Just a thought......i normally see mortgage deposits at 10, 15 and 25%.....does the mortgage your looking at have a 20% deposit?

Im sure there are some 80% LTV out there its just at 25% deposit ( 75% LTV)there are lots of options and good deals.

pph

Hi, the maximum LTV is 80% which suits me fine.

There are good deals on 25% equity but it clears our savings out entirely. I think it's not advisable in this economic climate. Essentially we pay £75 a month more to have about ~9 months deposit sitting in a savings account in case of economic catastrophe(?)

Yorkie1

The economic catastrophe, jobs-wise, may not happen, but in my limited experience you can easily have new / unexpected expenditure when you buy a house e.g. the sellers were less than candid about the state of the boiler... best to have a buffer in case this happens or the car dies.

pph

VERY good point!