Is It Futile To Save For A Deposit On A First House In This Market?

smithm9

Hi everyone

I wonder if I could pick your collective brains to help me make my mind up about saving for my own place. I'm lucky to be in quite a fortunate position, and am well aware that there are many people out there who are worse off than me. However I am struggling to make sense of the property market as a potential first time buyer and I was hoping you guys could maybe give me some pointers. First some background on my situation to help you help me.

I'm 25, single, work in a commuter town for London (hour by train, 90 mins by car) and live with my parents just outside of that town. Having paid off my student loan as soon as possible (wish I hadn't now looking at the advice on the site, but I didn't know at the time), and treated myself to a few things (nothing lavish) after a lifetime of austerity (I was determined from an early age to go to university and pay my way), I set my sights on buying my own place. I should also point out that the oft mooted 'Bank Of Mum & Dad' doesn't exist for me. Even if it did, I find the railroading of parents by the media to stump up money for their children's house deposits in addition to the existing parental commitments to be rather unpalatable.

Having done some rudimentary calculations (Salary * recommended sensible multiplier) to give the mortgage amount at the recommended LTV of 80%, thus requiring a 20% deposit, I am presented with the following figures: (£32000 * 3.25)/0.8 = £130000 total property price, giving a required deposit of £26000.

By combining living at home, saving hard and returning to my austerity lifestyle, I have been able to save £10000 this last year, which leaves £16000 still to save. At the current rate, that's about 18 months away to save for the deposit alone, never mind fees, furnishings and having a bit of spare cash in case things go wrong. As much as I get on with my parents, I'm not sure any of us could deal with me staying there for another year and a half minimum.

Assuming I did stay at home and saved up enough money, my first port of call would be a £130000 place. In my town and the surrounding area, while that wouldn't get me much, it would be a modest, honest start. However, looking ahead, there have been reports that the current interest rate level is unsustainably low and that it will increase in the medium to long term. If that were to happen, I would be faced with relatively high repayments, thus reducing my ability to save for somewhere a bit nicer. There is also speculation that the value of houses may drop in the medium to long term. I know this is a point of contention on this forum (no fighting please - this is my first post!) and it seems that regardless of which sources you use, for every valid point saying that values will fall, there is an equally valid point saying they will rise, and another saying they will stay the same. If prices were to drop independently of interest rates then I would have jumped too soon, and if the drop were combined with rising interest rates, bad things start to happen.

I've looked at the Government schemes, and while they look good on face value, when I sat down and did the sums, I wasn't quite so sure. Without rattling off loads of figures (I can in a later post if it would help), it turned out to be more expensive in the long term because while you have a smaller deposit, after five years you have the mortgage repayments plus the equity loan repayment at an ever increasing rate (they generally increase by (Retail Price Index + 1)% per year). Added to that, the properties are generally overpriced, so it would take some time of increasing house prices to be able to get a return on your investment should you want or need to move on. With the potential for house price falls, that could be a long way off.

Finally, there is the prospect of renting. Rental properties in my town and the surrounding area are generally quite high, and are increasing quite steadily. Therefore if I did move out, just to get a place of my own, it would essentially call an end to any prospect of owning my own place. And I would be paying off somebody else's mortgage.

I know I've rambled on a fair bit here, and I know that there are people out there in far worse situations. I've tried not to play the 'woe is me' card, nor come across as ungrateful for my current, rather fortunate situation, instead just presenting a difficult situation as I see it. I'm not looking for people to spell out for me exactly what I should do. Instead, if you have any ideas, thoughts or suggestions I would be most grateful.

Thanks

MiddyMum

What sort of property are you looking to buy? Are you able to buy properties that meet your requirements for 130k? ........I personally, would just continue to save the deposit you need and then buy. Throwing money away on rent, is just a waste if you can help it. People will always debate house prices, but I don't think they are going to fall substantially.

quintwins

ok so your options are

1-stay at home living with your parents
2-rent
3-save and buy

You seem to be very level headed working out that shared ownership is more expensive, now work out how much renting will cost you for the rest of you life and how much a house will cost you, look at mortgage caculators and overpayment calculators to see just how much you can save and make your decision then.


If i were you i'd stay at home aslong as i can save as much as i can until 1 you kind your dream home, or 2 your parents want you out then buy.

smithm9

Thanks for the very speedy replies! At £130k, I'd have a pretty limited choice, but every now and then a real gem for the price crops up. 1 bed flat (or house, ideally), maybe 2 bed if I got lucky. Quintwins, I'll see what those calculators come up with.

Kynthia

A 20% deposit is something to aim for but should not rule your life. Most first time buyers in the South East can't manage this amount. If you look at having a 10% deposit then you should be able to buy quicker or buy a better property.

If you don't want to live at home until you've finished saving then your best option is to become a lodger or rent a room in a shared house with other tenants. This is much cheaper than renting a whole flat and still allows you to save.

Government schemes are usually to help those with low incomes and little savings. They aren't charity so they have financial downsides. You should only use them if you can't buy on your own and I'm sure you can with some more time.

You will go mad trying to second guess whether property prices will go up or down. You can't know so don't let it stop you getting on with your life. However interest rates will go up at some point so factor that into your affordability calcs or get a 5/10 year fixed rate.

MiddyMum

I would stay at home and save as much as you can for a 2 bed. 1 bed flats are a headache to get rid of when the time comes to sell.

quintwins

I would also keep looking for a 2 bed as it will take longer for you to out grow it, you never know could be the patter of little feet before you know it. Or maybe you'll just accumulate that much stuff you want a spare room/study.

[Deleted User]

Also consider other areas that may have more growth potential but lower prices. As u already have a 90 minute commute, that should widen your horizon's considerably. I live in Kent, and there are quite a few 2 bed houses for sale as long as u aren't too picky that could be improved.

m0bov

Aim to stay at home for another 5 or so years whilst saving, its the only and best way. I just got my first home, for £130k and I'm in my mid 30s. I have a home in my name rather than paying someone elses investment.

SuzieSue

m0bov wrote: »

Aim to stay at home for another 5 or so years whilst saving, its the only and best way. I just got my first home, for £130k and I'm in my mid 30s. I have a home in my name rather than paying someone elses investment.

Agreed, if your parents aren't in a position to help and you are on a normal wage then living at home and saving is the only way to buy a property.

You have to decide what is more important - living independently and renting or buying your own place. For me it was the latter and the only way I could do it was to say at home for as long as it took and I have no regrets as I am now in my early forties and mortgage free and don't have to worry about the roof over my head.

martinsurrey

A £100,000 repayment mortgage at a FTB rate will be around £600 a month, easily affordable on your salary (take home of around £2k a month?)

But I would definitely aim for a 2 bed, you can get a lodger in who will more than pay the extra mortgage amount for the second room, and will give you a lot more flexibility for the future.

Another thing to consider on affordability is potential salary increases, the first 2 years of owning is the hardest, in 3 years time you will twice the work place experience, what is your earning potential in 3 years time?

If I was in your shoes, I would buy as soon as the right property came up (10 or 20% deposit), it’s not ONLY an investment (although it can be), it’s a lifestyle, and by the sounds of it, you’re an independent person.

Good luck, and enjoy it!