Buying For Future?

Robin_TBW

Hi guys, new to the forums and more of a saver than anything else (as you can see from my signature) but have had a couple of thoughts lately that I was just going to see if they were at all realistic. All of you will have more knowledge than myself. Anyway, I'll get started.

My Situation:
I am currently earning approximately £1,300 p/m and have reasonably low outgoings due to the fact I am still living with a parent. In 2013 I will be giving that parent £125 p/m to live there. Everything else covers my work travel, interests, phone and the rest. I also have an outstanding student loan.

· Option One:
Keep saving. Keep it simple.

· Option Two:
I've recently started to think that with my low outgoings and saving as much per month as I can that it might be an option to get my first mortgage and immediately rent out the house and continue living where I am. The rental income would cover a certain amount of the mortgage and then I'd pick up "the rest" with the excess income I'm getting. Then, in the future I could move out and into that place.

· Option Three:
Take most of the details from Option Two but replace the renting out of the entire home and replace that with me moving there immediately and renting out a second room to a lodger. This then covering a smaller amount than a full rental would but I'd be living there rather than where I do currently.

Just wondering what other people think at the moment. I'm in no rush and not actively pursuing Options Two/Three at this second but I keep getting them back in mind and wondering if it'd be worthwhile.

Time to (un)convince [delete as appropriate]

HAMISH_MCTAVISH

In your situation, you have extremely low outgoings via parentally subsidised living expenses, and therefore the capacity to save more than you will in the future.

I'd suggest focusing on saving as big a deposit as possible for now, as house prices are only rising slowly at the moment. (1% or so in the last year)

This will change at some point in the next year or two as prices start to increase more quickly, and when you see that start to happen you should buy as quickly as possible. Whether with a flatmate or via a BTL mortgage is up to you, there are pros and cons to both, but either way the faster you save now the better position you'll be in..

motherofstudents

Stay where you are and see how much you can save. If you want to buy a house to let out you will need a large deposit and I think the rent must cover 125% of the mortgage payments. Option 3 may be a good idea once you have saved. That's what I think anyway - good luck !

Robin_TBW

HAMISH_MCTAVISH wrote: »

In your situation, you have extremely low outgoings via parentally subsidised living expenses, and therefore the capacity to save more than you will in the future.

I'd suggest focusing on saving as big a deposit as possible for now, as house prices are only rising slowly at the moment. (1% or so in the last year)

This will change at some point in the next year or two as prices start to increase more quickly, and when you see that start to happen you should buy as quickly as possible. Whether with a flatmate or via a BTL mortgage is up to you, there are pros and cons to both, but either way the faster you save now the better position you'll be in..

Thought that was the sort of response I'd be looking at I've set myself a big savings target for 2013 and expect to fall slightly short but even if I do my savings will be at £25,000+ by the end of that year. I want to be comfortable at the point I move that it's the right decision and you're right that the more I have behind me will help in doing that as well as it looking a lot better for a future mortgage application. Just how much longer can I take living 'at home' and people continuing to take me seriously. The "you still live with your parents" comment is never particularly nice.

motherofstudents wrote: »

Stay where you are and see how much you can save. If you want to buy a house to let out you will need a large deposit and I think the rent must cover 125% of the mortgage payments. Option 3 may be a good idea once you have saved. That's what I think anyway - good luck !

Forgive my lack of knowledge when considering the "must cover 125% of the mortgage payments" comment but why would a tennent rent a place if the rental payments were more than it would cost to get a mortgage there? I've a slight lack of knowledge in the mortgage/rental area.

Certainly going to keep saving as much as possible though either way and I do think the third option might be the best option ultimately or I'll never end up leaving home.

JimmyTheWig

Robin_TBW wrote: »

Forgive my lack of knowledge when considering the "must cover 125% of the mortgage payments" comment but why would a tennent rent a place if the rental payments were more than it would cost to get a mortgage there? I've a slight lack of knowledge in the mortgage/rental area.

The usual financial reason to rent would be that you can't afford the deposit to get a mortgage.

But there are plenty of non-financial reasons, mainly which all boil down to not wanting to stay in the place for long. There are all sorts of costs involved with buying and selling properties. Unless prices are rocketting (which isn't happening currently) it is not worth doing unless you are going to keep the place for a good few years.

princeofpounds

Save. Unless you already have a big deposit and want to move out. Financially it's a no brainer.

You will get much cheaper financing on any eventual mortgage if you have 20,30,40% deposit.

Your only advantage in buying sooner is in case house prices run away from you. That seems unlikely for some time to come.

You would then incur running costs, fees, stamp duty, tax on a certain amount of your rental income etc etc.

As for why tenants would pay more than a mortgage:

- no deposit
- want to rent for flexibility reasons, or simply want to live in a property that they wouldn't want to own long term.
- avoid transactional costs like stamp duty, estate agent fees for buying and selling, particularly important when you are not guaranteed to be in one place more than a few years.
- interest rates might be temporarily low but potentially higher cost in the future, making a comparison at one moment in time invalid.
- have a view that property prices will go down.
- BTL landlords typically already have some equity locked up in the house, which means you are paying a mortgage on only a % of the property when the tenant is paying rent on the whole property. Obviously this comes with the opportunity cost that this equity can't be invested elsewhere. This is the main reason; you aren't comparing apples with apples!
- etc etc

steeeb

Robin_TBW wrote: »

Forgive my lack of knowledge when considering the "must cover 125% of the mortgage payments" comment but why would a tennent rent a place if the rental payments were more than it would cost to get a mortgage there? I've a slight lack of knowledge in the mortgage/rental area.

Because people can't get 100% mortgages or get a deposit together.

I'm moving from paying 675 rent to somewhere where the mortgage will be 550ish. Rent is a lot of the time more expensive that mortgages nowadays, simply because banks weren't lending or people can't get deposits.