Getting onto the Property Ladder

Phirefly

lucy_w86 wrote: »

I would like to buy our own place rather than rent as its dead money. Getting onto the property ladder is just so difficult.

That rent is 'dead money' is an old fashioned myth. You've done the best thing you could in these circumstances which is come in here and have people like me advise you of the facts. It is a FACT that unless you can get an interest-only mortgage cheap enough to allow you to put significant savings aside every month or make mortgage overpayments then paying an interest-only mortgage is no different to paying rent, your lender is effectively your landlord and you're no better off, in effect your interest only mortgage IS dead money.

I have just bought the house I was previously renting. The rent was pretty cheap. It allowed me to save up for a 5% deposit. We bought the house we were renting and have a 95% capital repayment (i.e. not interest only) mortgage. Because we had 5% equity, we had access to cheaper mortgage products. I now spend the same amount a month on mortgage repayments that I was previously paying out on rent+savings. Only now because I'm paying the capital on my mortgage, it is not so called 'dead money'.

I understand completely why people prefer to have their own place rather than rent - I'm one of them. But listen to the people on here who have the experience, sit tight and save hard!!!

good luck

lucy_w86

Phirefly wrote: »

That rent is 'dead money' is an old fashioned myth. You've done the best thing you could in these circumstances which is come in here and have people like me advise you of the facts. It is a FACT that unless you can get an interest-only mortgage cheap enough to allow you to put significant savings aside every month or make mortgage overpayments then paying an interest-only mortgage is no different to paying rent, your lender is effectively your landlord and you're no better off, in effect your interest only mortgage IS dead money.

I have just bought the house I was previously renting. The rent was pretty cheap. It allowed me to save up for a 5% deposit. We bought the house we were renting and have a 95% capital repayment (i.e. not interest only) mortgage. Because we had 5% equity, we had access to cheaper mortgage products. I now spend the same amount a month on mortgage repayments that I was previously paying out on rent+savings. Only now because I'm paying the capital on my mortgage, it is not so called 'dead money'.

I understand completely why people prefer to have their own place rather than rent - I'm one of them. But listen to the people on here who have the experience, sit tight and save hard!!!

good luck

Yeh - I understand. It is a difficult thing to try and explain to older relatives who in their day could buy a place pretty easily and expect it to be the same.

I need to move out within a year or so and renting is my only option. Then try and save as much as possible. May look into these part buy part rent schemes.

CB1979_2

hmm interesting phirefly, but what happens in 25 years of renting, you have nothing to show for it.

whereas all i have to do is sell my place and give back £165k to the banks, it's quite likely though, that the price of my place would have gone up a fair bit.

basic I know, but THAT is a FACT!

Phirefly

I know what you mean about older relatives - they just don't get it. Theres a whole generation who's holy grail was to own property and just don't understand the theory behind renting. My sister's only 8 years older than me but she was the same, she just couldn't understand the argument for renting and saving. She bought her first flat 10 years ago for 37k and has done really well out of the rising property market, she just had no idea how much things have changed. They go on about this silly 'you have to get on the property ladderbefore its too late' nonsense - don't listen to them.

Two years ago I was exactly in your shoes. I was panicking that I was never going to own my own house. Two years on, I've had a decent payrise, Mr. Phirefly's sorted out his debt and has taken on half the mortgage and I've saved 5K. And yes the house prices have risen a bit since then but I'm in a much better position to buy. You will be too!

Phirefly

CB1979 wrote: »

hmm interesting phirefly, but what happens in 25 years of renting, you have nothing to show for it.

whereas all i have to do is sell my place and give back £165k to the banks, it's quite likely though, that the price of my place would have gone up a fair bit.

basic I know, but THAT is a FACT!

Point taken, although I'm not suggesting people rent for 25 years, I'm saying its advisable to save hard and put yourself in the least risky position as possible when you come to buy. I do appreciate its harder in different parts of the country though.

King_Of_Fools

CB1979 wrote: »

hmm interesting phirefly, but what happens in 25 years of renting, you have nothing to show for it.

whereas all i have to do is sell my place and give back £165k to the banks, it's quite likely though, that the price of my place would have gone up a fair bit.

basic I know, but THAT is a FACT!

Nobody is suggesting renting over a long term period of 25 years, though. Renting for a short term period of a few years and then buying when the market is not at its peak is a basic money saving technique that will save you far more in the long term.

If you had bought a house in 1988 on an interest-only mortgage, it would have been 10 years before you could have sold the house and made a profit as you described CB1979. In fact, if you had sold anytime before 1998 you would have had to pay back the bank more money than the sale price!

scrummy_mummy_2

CB1979 wrote: »

hmm interesting phirefly, but what happens in 25 years of renting, you have nothing to show for it.

whereas all i have to do is sell my place and give back £165k to the banks, it's quite likely though, that the price of my place would have gone up a fair bit.

basic I know, but THAT is a FACT!

Money in property (like any investment) is worth nothing until you have it in your hand......if a (non investor landlordy type) buys a house and it increases by 20K over 5 years, the price of other properties will have increased in direct proportion, so when they come to sell and move on they'll only notionally (on paper) be better off.
If you sell your home, unless you inherit something or can live rent free somewhere, you have to reinvest your 'gain' in another home to move on.
The basic plan of investing on the property ladder only really 'works' long term if you invest as much money as you can into property over your adult lifetime, spending much of therefore broke and miserable! get the most equitable house you can afford and then 'downsize' to release the money. If you are young...this probably isn't sensible or realistic.

Nothing is guaranteed in life (except taxes and death) and I would/SHOULD have rented for my first 10 years of single adult life and been happy rather than push myself on the 'golden chalice' of the property ladder and been skint and miserable.

pricedout_1

CB1979 wrote: »

hmm interesting phirefly, but what happens in 25 years of renting, you have nothing to show for it.

But, for the OP, along with millions of others, in the current climate of rising interest rates and sky high speculative property prices (caused by the now defunct lower rates of years gone by) it looks like it would be best to wait untill such a time as the market swings back in favour of the buyer. This may take a few years more. In this time they can save .... ISA's high interest accounts ... and save to reduce the eventual starting point of the capital amount of a repayment mortgage. This is likely to leave them better off in the long run. ie ..

rent for a few years + lower mortgage + lower mortgage interest

means paying less than ...

large mortgage now + associated large amount of interest
+ ( possible -ve eq )

:money:

CB1979 wrote: »

whereas all i have to do is sell my place and give back £165k to the banks, it's quite likely though, that the price of my place would have gone up a fair bit.

basic I know, but THAT is a FACT!

FACT? You simply cannot be sure about that whilst interest rates are rising.... the risk of negative equity is increasing.(another 1/4% up today ... these 1/4 rises do little to quell inflation becuase they do not have enough of an impact so they are likely to continue raising rates.)

The US and Spain, and I believe Australia are all now experiencing downturns that began last year. The best case scenario is stagnation whilst wages catch up (stagnation being increases in line with inflation). The worse case scenario is a Japanese style crash of around 60% over 15 years. This goes to show that it can happen and it is happening and to ignore the signs would be wrong

Tiger_greeneyes

scrummy_mummy wrote: »

Nothing is guaranteed in life (except taxes and death) and I would/SHOULD have rented for my first 10 years of single adult life and been happy rather than push myself on the 'golden chalice' of the property ladder and been skint and miserable.

It's all down to what you can afford though scrummy mummy - for me, renting would have cost four times what my first mortgage cost me - I'd never have been able to afford to move out of home. I've rented twice - and my rent has always been more expensive than what a mortgage would have cost me for an equivalent property. It depends where you are in the country.

To give a little balance to the OP, my situation is completely the opposite to scrummy mummy's - I've never felt comfortable in a rented property - I had one extremely dodgy landlord who rooted through my belongings on a regular basis, there's no security of tenure once your contract has ended, you have to live with someone else's decor etc. I don't regret taking on a mortgage for a second. I'm 40 now and will never have to pay another mortgage repayment or rent installment ever again.

Someone mentioned that it's a good idea to wait until prices come down - it's probably a good idea to remember that it's not a given that this will definitely happen. A crash has been predicted every year for at least ten years. As long as you're happy you're doing the right thing then you go for it!

Shared Ownership can be a brilliant way to go - although you'll be paying rent on the portion of property you don't own. I've got family who are on a SO scheme and it works fine for them.

I don't know where you are, but is it possible you could look a bit further out to somewhere you can afford? Sometimes that five or ten miles journey can make a huge difference. It's called the 'ripple effect' and it's always been my philosophy to make good use of it.

I'd certainly find an IFA though, find out exactly what you can afford

lucy_w86

We are 21 and 22 years of age...

Whats the rush?

We live in SE London. I work in central London