Should I buy or continue to rent?

ed89

Here's my situation in brief;

I'm 23. Earn just under £28k per annum. I have £19k saved for a deposit. I've been renting a place for almost five years at £625 PCM with my long term flatmate. Property prices for a 2 bed flat around here are between £105k and £135k.

My plan was to start looking to buy when I have around £25k saved. However, given that I now may have enough to obtain a mortgage for a property in the above price range, should I be looking to buy?

My idea was to buy somewhere that I would live in for a long time. But I am now thinking it may be wise to buy somewhere to live for the next five years or so, rather than continuing to rent, if the mortgage repayments are going to be almost the same as the rent (perhaps higher by £100 or so, but that's OK)

Other info: save approx £350-£400 month (after paying rent, bills etc), zero debt. I can't see my flatmate moving out in the next few years, but if he does, I should be able to meet the repayments easily, even if it means reducing how much I can save each month.

Grateful for any thoughts you may have. :money:

Thanks

annoyd

i just bought a house (in december) paid 115k... put down 15 percent, £17,250... i got 4.6% interest, mortgage repayment is 475 a month for 35 years. so cheaper than your rent now (providing you rent a room and split costs still). But dont forget to take into account maintenance and ground rent that you will have to pay if you buy a leasehold flat.

Mortgage market changes loads though so i would still check these rates are still available... Im same age as you, and i got it on my standard 22k a year income, but i also earn up to 40k with overtime which some other mortgage companys would have took into account and given me a better rate, but as i hadnt much of a credit history i got rejected by a few so had to settle with the higher rate. So i would assume that you would get a mortgage in that price range no problem providing your past history is ok

lee111s

Your mortgagw payments wouldn't be as much as your rent is. My 105k mortgage costs me £525 a month. Buy now, you're currently paying someone else's mortgage.

[Deleted User]

Purchasing a house is a long term investment, when you're using a relatively small deposit your mortgage will not be favourable in the short term. The start of a mortgage is mainly paying interest; at the start you're not building much equity, as the mortgage goes on you start to pay less interest and earn more equity.

There are also costs associated with owning your own home that you don't experience when renting, for example if your washing machine needs replacing or you need a plumber, when you're renting your landlord will cover the costs, if you own the house then those costs will be on you.

There is also the cost of purchasing and selling your home: estate agent fees, surveys, potentially stamp duty, these costs add up and will eat in to any potential profit you make.

At the start of your mortgage you could be paying £600 per month with £450 going towards the interest and £150 towards equity. After one year you will have paid £5400 in interest and £1800 in equity. If your house maintenance costs were £1000 for that year and then you needed to sell and the house value had gone down (entirely possible) you could stand to lose thousands; extending that period to 5 years may put you in a more favourable position but it's not guaranteed. Houses are not increasing in value like they used to.

Don't consider rent wasted money when the alternative is a mortgage with a low deposit because mortgages are expensive at the start, every mortgage payment does not equal that £ of ownership.

A good calculator that will help you work out if it's better to buy or rent is this from the nytimes although it's aimed at the US it'll still be a good way to understand. Here's a UK calculator although not as pretty.

Buying vs. renting is not saving vs. wasting, it can be complex when a small deposit is involved. Purchasing to live in long term (the entire mortgage period) is almost a no-brainer, but short term is a very different story.

ed89

Thanks for all your replies.

I have had no debts in the past, no overdue payments and my only outgoings are monthly bills for the usual (rent, tax, utilities, food etc) - got a company car and insurance/maintenance/fuel is covered by the company. (I am looking to move within walking distance from work anyways, as I am currently, so losing the car wouldn't be a disaster)

Is a 15-17% deposit considered small? I would have thought average - not large but not small (i.e 5%) either.

I appreciate the unexpected costs involved with home ownership; boiler breaking down, exterior maintenance and all the rest of it. I have a "safety" pot with approx £600 in it that I don't touch. I hope to grow this to about £3k within 12 months which will hopefully cover any unexpected costs or emergencies.

ed89

Citric, thank you for your response. I should add that my current flatmate has been sharing the rented flat with me for three of the five years I have been renting and will not be moving out any time soon. If he does (very very unlikely), I have no problem searching for and living with another person.

So while owning a property for 5 years or so might not end up cheaper than renting (by myself), with repayments + bills split 50/50 with a flatmate, it will surely be the better solution, even if for it's only for five years (minimum)?

Thanks

marathonic

The mortgage rates usually reduce for every 5% deposit that you have.

With a 15% deposit, there should be quite a few available to you but the best buy lifetime tracker rate would be 3.89% with Britannia.

Increase that deposit to 20% and the best buy lifetime tracker rate would be 3.39% with HSBC. This one has a £599 fee but the 0.5% saving is £500 every year on a £100,000 mortgage (reducing as the mortgage balance reduces over the years).

So what would I do if I were you? I'd forget about potential house price rises or falls in the near future as they could go either way.

Instead, I'd concentrate the next 1-2 years on increasing that deposit.

A 2-bedroom flat will also have management charges to take into account so I'd have a look at 3-bed terraced houses with a freehold title to see the difference in cost.

Taking the above 3.39% rate into account, based on the current BOE base rate, every £10,000 mortgage will cost you £44.29 monthly over a 30-year term. Take out a long term and overpay where possible to reduce the term. This will ensure that your contractual commitment to the bank is lower which will help if you ever hit tough times.

With the above in mind, and assuming a flat has an annual management charge of £890, your annual management charge would be better used to service an additional £20,000 mortgage secured against a 3-bedroom, freehold property.

Have a look at the 3-bedroom properties available in your area and work out what the 20% deposit would require in savings. Based on your earnings and current savings rate, you should have no problem with a £150,000 house which, assuming a 20% deposit, means a £120,000 mortgage.

Fire_Fox

On top of all the obvious costs you should have three months mortgage payments saved in case you fall ill or injured and cannot work or get made redundant unexpectedly. Support for Mortgage Interest does not kick in for three months.