Pro's/Con's- Stay renting or apply for 95% mortgage?

Ad86

Hi.
Me and my OH are currently renting (£450) per month.
But we really want to buy our own place (freedom of being able to decorate, and a much more stable situation), we have had 2 landlords give us notice letters within 6month rentals at previous houses. Leaving us to move houses twice in a year. Both "short" term lets which were not made clear at the start of the tenancy.

Anyway, we have seen the few 95% LTV mortgages that are offered, but are unsure if one would put us in a financially worse situation than we currently are.

We earn around £26K basic between us, and have no credit card debts etc etc.

Should we continue renting, or have a closer look at 95% mortgages? Looking at houses around £70'000-£80'000 mark.
And we would struggle to save for a 10% mortgage, unless we put this off for X number of years and continue spending "dead" money on rent.

Thanks for any advice.

richardw

Are your earnings likely to stay the same over the next few years?

Ad86

We both work for the same company, so highly likely to stay the same/very similar apart from the occasional 1-2% pay rise every year or two.

olias

Well there is a problem for a start. In these uncertain economic times, if you are both working for the same company, then if anything were to happen (it goes bust etc), then you would both be looking at losing your jobs.
Another potential problem is that I am guessing you are young - could you afford on one wage in the event of pregnancy?
It would appear that you have very little savings, and what you do have will go on deposit and fees, leaving you nothing to fall back in the event of an emergency.

Having said that, I think renting is dead money, and with some of the current low mortgage rates, it makes more sense to buy, particular if you get a long fixed rate so you have some sort of limit on your outgoings.

I would also look at the possibility of getting a 'doer upper' - nothing major as you don't have the cash - just something that you can build a bit of equity into quickly and relatively cheaply - say something with dated decor, poor garden, and maybe in need of a new kitchen and bathroom.

Oh, and study your local market - is it rising? static? falling? These will all have a bearing on whether it is a good idea.

Olias

ValHaller

Ad86 wrote: »

And we would struggle to save for a 10% mortgage, unless we put this off for X number of years and continue spending "dead" money on rent.

The 'dead money on rent' line is at least as emotional as it is factual. Money put into your own place can quickly become equally dead.

If you buy at 95% LTV, you are renting a lot of money and it only takes a small mistake where you offer £1000 over the odds for a house combined with say a 4% drop in values for you to enter negative equity. If you both lost your jobs and cannot pay the mortgage you would find that it is a real £4000 - 5000 you have lost and your deposit would be 'dead money'.

As you are both working in the same place, you are vulnerable to losing your jobs simultaneously. I suggest that you grit your teeth, scrimp and save and get yourself to 10% deposit

Ad86

The job situation is something that we have thought of in the past, but i have pretty much concern about either one of us losing our job anytime soon. Of course you can never be sure though.

We are both in our 20's, and have a low amount of savings.

It does seem like there's as many con's and there are pro's to both renting and buying.

kingstreet

You will need a blemish-free credit history for a 95% mortgage. You'll need to be on the electoral roll at all your previous addresses and have an employment history of (preferably) three or more years with the same employer, to score the maximum possible points.

It will also be helpful if you have well-conducted recent credit, such as a credit card which you pay off in full each month. Having no credit will see your possible score reduced.

Talk to a whole market or independent broker if you have not taken advantage of something like the Nationwide Save To Buy Account. Avoid national estate agency chain advisers.

Cash-Cow_3

Another thing to consider is timeframe. House buying should be a long term investment. If you buy and then sell in a couple of years once fees are taken into account you may well lose money.

Ad86

We are on the electoral roll.
I have a credit card that i use each month (just to help credit score, i dont NEED it)
Never missed a bill payment, have phone contract etc etc.

So our credit record shouldnt be bad at all.

If we do buy anywhere we expect it to be long term, we have lived together a few years, and should have no issues with house/bedroom space for the next few years, even if we bought a small/terraced 2bed.

kingstreet

For a 95% mortgage you really need;-

- no late payments with well maintained existing credit
- three years on electoral roll
- three years with same employer
- long-term relationship with current bank
- fully complete application with all phone numbers.

If any of the above falls down, I'd advise my client they may not get a positive response at AIP. You can be declined simply because the lender feels the application is "too risky" even if there is no adverse information.

Kynthia

Can you afford a house that will meet your needs for more than the next five years? It is not cost effective to own a property for less than this due to buying and selling fees. If you can't sell your property you would be stuck in an unsuitable home.

Is there any chance you will need/want to relocate elsewhere in the next 5 years? Renting gives you flexibility, but owning ties you to an area.

Can you afford the mortgage repayments and still afford to do maintenance and repairs on the property? There will be the occasional big job like new boiler, roof repair, new carpets or kitchen, etc, as well as pipe leaks, wiring repairs, painting & decorating, etc.

Could you afford it is interest rates increased? Interest rates are extremely low at the moment but your mortgage rate could easily change to 5-7% in the next couple of years. If your rent increased you'd have the flexibility to rent a cheaper property rather than default.