Saving Up vs Mortgage

Charlie_Pappa_Tango

Hi everyone, first off, apologies for the burn account, felt odd posting about mortgages under my normal pseudonym! Although I'm sure it's not that hard of a code to crack

I’m Looking for a bit of discussion on the old mortgage topic. This is a bit theoretical as there's a fair amount of variables, but...

Basically I’m in a fortunate position where I *could* move house or stay in our current property it's going to be hinged on making the right investment choice.

The plan could be to sit in current house for 10 years and save up about £11,000 a year. (Assuming that the budget is good and no unforeseen problems prevent this etc etc)

Therefore in 10 years we would have £110,000 cash.

In ten years we assume to have our current property mortgage left of £45,000 and equity of approx + £50,000. So we'd be able to port our mortgage and get a property for £205,000. (I think this is correct, feel free to tell me otherwise).

If we were to move house tomorrow, and mortgage the 110,000 over 25 years it would cost us £92,700 in interest. (assuming the interest rate averages at 5.5%)

The only way this seems like a viable option is if the value of the proposed new house increases in value by £92,700 over 25 years (I'm of moderate capability in respect to DIY tasks so I'd envisage we'd look for a property that requires some work - i.e. new kitchen, bathroom etc) which could potentially add circa £20,000 value but to make up the extra £72,700 in rising house prices seems unlikely.

I appreciate there's a ton of variables here, like area of property, interest rates, etc. but using this example in terms of investment is it better to sit tight and save? or do rising house prices over such a long period of time make the saving argument moot?

My brain seems to default to if you pay the banks for the privilege of borrowing then you are out of pocket. My mother thinks you can step up the property market and negate the costs of borrowing?

I also found this article on the Daily Mail (granted they are the harbingers of doom) and this article reckons “If the effects of inflation are stripped out, house prices have increased by 89% in real terms in the last 20 years. (89% of 205,000 is £182,450 so we'd be quids in by £90,000 odd ?).

Read more: dailymail.co.uk/news/article-156646/House-prices-soar-306-20-years.html#ixzz2aQx2RshI

So what’s the general opinion, is it better to avoid borrowing if you can bearing in mind that in 10 years house prices and interest rates could be very different…?

Anyone done the old saving up and buying almost outright routine? I'm sure there's plenty of people who have opinions of mortgages and how their property value has tracked against it over the years?

I'd love to hear...

Thrugelmir

At the current time. Personally I would opt for debt repayment, i.e. building equity. As the medium future has one word written all over it, UNCERTAINTY. House prices are unlikely to rise significantly, possibly even fall once interest rates start rising back to a more normal levels. So taking a cautious approach while letting the whole economic situation resolve itself maybe the best policy. With increased equity available then the required borrowing to move will be lower as well.