Save for a deposit or 100%?

Miss_M_2

I'm currently paying rent in a shared house each month (£213) and saving for a house deposit. I can only afford to save max £500 per month, so I will be saving for a long time to get 25% of a £100k mortgage. The rent I'm paying could be paid into a mortgage if I got a 100% one, but is the higher rate of interest on a 100% mortgage likely to outweigh any benefits of being able to pay extra each month due to not paying rent?

I know that there are lots more factors to take into account but if anyone can shed any light at all on this, that would be a start! :think:

Thanks

BoGoF

The only relevant factor is that 100% mortgages no longer exist so get saving !

Tixy

You need to get a deposit behind you - doesn't necessarily have to be 25%, but aim for a minimum of 10%. Getting a mortgage with 10% won't be necessarily be easy, but it at least might be a possibility.

Werdnal

Interesting article here:

http://www.moneysupermarket.com/c/news/getting-a-mortgage-with-a-small-deposit/0010826/

betmunch

BoGoF wrote: »

The only relevant factor is that 100% mortgages no longer exist so get saving !

What about the 100% mortgage offered by Aldermore?

brit1234

betmunch wrote: »

What about the 100% mortgage offered by Aldermore?

I don't see the point in going for an 100% mortgage in a falling market, infact it is positively dangerous.

Aldermore seem to have good high interest saving accounts but would anyone feel safe saving with them when they lend so irresponsibly.

Horizon81

As you have to be nice to newbies, it's a fair question but one that belongs in 2006. 100% mortgages are a stupid idea and should never have been offered. Stick to saving your £500 a month, sure it'll take a while to build up a big deposit but to quote Coldplay, "nobody said it was easy". Sadly nobody has the right to buy a home, you must live according to your means - a fact forgotten by many in the boom years.
I hear all this right to buy BS on the radio all the time, you put up £4K deposit, mortgage 90%, and then get an interest free loan off the housebuilder for a few years. You'll end up paying through the nose for it all but it's an option all the same. As is meeting a wealthy man.

kingstreet

A 100% mortgage isn't going to be available to anyone who hasn't got either;-

- a parent or grandparent prepared to grant a charge over their property
or
- a relative with a lump sum equal to 25% of the purchase price to put in a charged savings account.

If a lender won't take a risk on the housing market, it seems a bit unfair to put your relatives' security at risk IMHO.

BitterAndTwisted

Horizon81 wrote: »

to quote Coldplay, "nobody said it was easy".

Something else they "borrowed". This time from the Four Horsemen.

Any road, a place where a room in a shared house costs only £215 a month is likely to have houses for sale at something a person saving like mad could afford on a 90% mortgage. Depending on what their salary might be. Remember OP you'll need about a grand for a survey and another grand for your conveyancing. Saving £6k a year means you could be there in no time.

Caveat_Mortgagor

Ok, I'll play along with the OP.

Your current situation is you pay £213 a month in a house share (I assume you pay a share of the bills as well). This means you can save £500 a month. You are looking at houses priced around £100k.

If, and as others have alluded to its very unlikely, but IF you could get a 100% mortgage for 100k, its not unreasonable to assume that the interest rate would be at least 7%.

The repayments over 25 years at 7% would be £715 a month. Of course you would have sole responsibility for the bills.

You suggest you could have (£500+213=) £713 a month as your budget. Its a simple fact that you will not be able to overpay as you dont have the resources to do so. In fact with sole responsibility for bills you wouldnt be able to afford this mortgage at the outset. But lets pretend you can stretch and pay the bills.

By contrast, If you save £500 a month it will take you 4 years to save a deposit (with interest) of just over £25k. Assuming you had done this for the last 4 years and were in a position to buy right now (this serves the purpose of comparing a deposit with no deposit, it doesnt mean rates will be the same in 4 years time) the monthly repayment for a 25 yr mortgage at 3% would be about £360.

Assuming you were able to overpay and use all the £723 budget that has been alluded to, you could pay off a £75k (3%) in a period of 10 years.

What sounds better to you. Buy now (in an uncertain market) hope like hell that rates dont go up and cross your fingers that you can pay all your bills, and struggle; or save first, knowing yo have a cushion (your deposit) should things get financially difficult - and yet with the same monthly outgoings be able to pay off the mortgage 11 years earlier?

betmunch

brit1234 wrote: »

I don't see the point in going for an 100% mortgage in a falling market, infact it is positively dangerous.

Aldermore seem to have good high interest saving accounts but would anyone feel safe saving with them when they lend so irresponsibly.

Dont get me wrong, I wasnt saying the OP should go and get it, I have been in situations where its right to recommend it and situations where I have recommended against going for it.

Someone categorically stated they dont exist, they were wrong so I wanted to correct it.