Anyone saving to buy a house for cash?

marathonic

saverbuyer wrote: »

The maths maybe don't make sense for the North West of N.I but certainly do for Belfast, Particularly South Belfast.

For the top end of the market in NI (and South Belfast is the top) I can rent a house for substantially cheaper than an interest only mortgage and rates would cost me.

The same probably applies to some of the nicer areas in Derry. Limavady road, Talbot Park etc.

Housing benefit sets floor on rental prices in N.I. Rents here haven’t really raised in the last 10 years.

I'll be doing the same as you Tara. Paying with cash if at all possible and if not I'll have a mortgage less than 10 years.

I agree that the maths is different at the top end of the market but, if my ambition was to own at the top end of the market and it was in any way feasible to save and buy for cash, the interest paid on a sub-60% LTV mortgage wouldn't worry me in the slightest if I could own my dream home quicker.

saverbuyer

marathonic wrote: »

I agree that the maths is different at the top end of the market but, if my ambition was to own at the top end of the market and it was in any way feasible to save and buy for cash, the interest paid on a sub-60% LTV mortgage wouldn't worry me in the slightest if I could own my dream home quicker.

Each to their own.

tara747

marathonic wrote: »

Why on earth would you want to compare rental costs to a 20-year mortgage? For an accurate comparison, the rental costs should be compared to an interest-only mortgage (together with all the costs associated with ownership of course).

I don't get why people shy away from a 30 year mortgage which, together with costs, results in a £330 + £100 + £12 + £100 = £542 outlay (that's mortgage + rates + insurance + estimated monthly maintenance) and complete ownership of a home in 30 years.

These same people have no problem paying £600 for rent every month, likely increasing with inflation, with nothing to show at the end.

Provided a mortgage represents a relatively low proportion of your salary, it shouldn't worry you how long in takes to get it totally paid off, as long as it will be paid off eventually.

With ownership, you do have the added risk of interest rate rises but that can be alleviated by fixed rates if required. Also, interest rates are unlikely to rise much beyond their long-term average over the next couple of decades but rents will continue to rise indefinitely (with the odd brief reduction when we're in unusual economic circumstances).

Ah, the old 'nothing to show for it' chestnut.

Out of your £542 outlay, how much of that is paying off the capital owed? Because the rest (interest, insurance, rates and maintenance) is 'dead money' that you'll never see again.

Have you ever worked out how much your 30-year mortgage will cost you in interest?

My dad had a great saying: for every pound you borrow, you have to pay back two, and you have to earn three. It's stuck with me.

I have no intention of working until I'm 60. I want to be financially free, not indebted for most of my life.

Your choice clearly works for you, and I'm happy for you. I don't think the same about money as most people do. I'm not materialistic, so I don't buy lots of crap. I spend my money wisely on the things that matter to me, and don't bother with the rest. I have never paid a penny in interest or bank charges in my life.

I'm also lucky to have a high enough salary that I can save plenty, which helps.

And my rent is a good bit less than £600/month.

Prothet_of_Doom wrote: »

Provided house prices are not rising, and rent is no more expensive than paying the interest on a mortgage then clearly you might as well just save up.
I think that I would make sure I had some life insurance and critical illness insurance, but it gives you alot of flexibility which buying a house doesn't.
I own my own house, bought with a mortgage which was paid off outright about 3 months ago, having bought in 1998 and seen prices quadrupple in 10 years, to drop back to about 3 times where they were when we bought it. There is no way that with a rising market we could have saved up £50K before that £50 needed to be £150K (£200K at the peak).
What i'm saying is that you need to watch with a hawk the price rises and you might want to jump in with a much smaller mortgage as they start to rise.
Alternatively, as You'll have a massive deposit, you might change your mind and go for a nicer house in a nicer area and a massive mortgage.
But I digress... My first statement "Provided house prices are not rising, and rent is no more expensive than paying the interest on a mortgage then clearly you might as well just save up" needs the words "and you'll have the flexibility to change your plans should you wish to"

My job provides both of these things.

Agree on the flexibility bit.

FloppyDisk wrote: »

As above, a 30 year mortgage term doesn't have to mean paying it for 30 years. Mine is 30 years but I'm posting here so 30 years is obviously not my plan!

I had considered saving up to buy cash. I previously had a well paid job that covered my living expenses whilst I was away, so the more I worked the better it was. I saved heaps but ultimately it was sacrificing too much - I never saw my friends and I had no hope of a relationship. I'm much happier now earning less, paying a mortgage but I'm living the life I want to, rather than compromising too much. Yes have to pay repair bills, but I'm repairing MY beautiful home, the figures might not add up in your situation, but in mine they are very much worth it.

A mortgage doesn't have to mean a terrifying and reckless debt, it can be managed sensibly. If you're happy in your situation now, then of course it makes sense to take advantage of it, but I wasn't half as happy with the alternative to my own home.

Yes, I can see why you hated your job. Work-life balance is very important. My job has flexible hours and I have a short commute on foot/bicycle. I'm lucky, I know.



Oh and btw mortgagees (correct me if I'm wrong here)... you can have the security of long-term fixed rates OR the flexibility to pay it off quicker, but you cannot have both.

marathonic

tara747 wrote: »

Ah, the old 'nothing to show for it' chestnut.

Out of your £542 outlay, how much of that is paying off the capital owed? Because the rest (interest, insurance, rates and maintenance) is 'dead money' that you'll never see again.

Out of my £542, £140 per month goes toward paying capital down in year one - and this amount rises over the years.

I also save £58 per month compared to the cost of rental - more if you consider that a renter should have contents insurance where I'm currently paying buildings and contents insurance.

This £58 per month could be used to overpay the mortgage, effectively reducing the term from 30 years to 23.5 years and resulting in ownership of a house where the equivelant renter is still paying £600 rent - likely adjusted upwards due to inflation.

tara747 wrote: »

Have you ever worked out how much your 30-year mortgage will cost you in interest?

At current rates, I pay back £1.37 for every pound borrowed if I were to stick to the 30 year term.

tara747 wrote: »

Oh and btw mortgagees (correct me if I'm wrong here)... you can have the security of long-term fixed rates OR the flexibility to pay it off quicker, but you cannot have both.

A lot of fixed rate mortgages allow you to overpay by up to 10% of the outstanding balance every year.

Regarding fixed rates, the best 10-year rate I see on the market today is 3.84%. Whilst I wouldn't go for such a rate, it tells you what the banks opinions are on how much rates will potentially rise over the next decade.

tara747

marathonic wrote: »

Out of my £542, £140 per month goes toward paying capital down in year one - and this amount rises over the years.

So you pay £402 a month that you'll never see again.

I also save £58 per month compared to the cost of rental - more if you consider that a renter should have contents insurance where I'm currently paying buildings and contents insurance.

This £58 per month could be used to overpay the mortgage, effectively reducing the term from 30 years to 23.5 years.

Your £58 figure. You're assuming a £600/month rent. Is that what your house would cost to rent?

My contents insurance costs me £100/year, with £45 cashback - effective cost £55.

At current rates, I pay back £1.37 for every pound borrowed if I were to stick to the 30 year term.

Are you on a fixed rate, tracker or variable?

A lot of fixed rate mortgages allow you to overpay by up to 10% of the outstanding balance every year.

The ones with the best rates?

My replies in pink.

marathonic

tara747 wrote: »

So you pay £402 a month that you'll never see again.

Which, as a cold hard fact as opposed to opinion, is better than never seeing £600 a month again.

tara747 wrote: »

Your £58 figure. You're assuming a £600/month rent. Is that what your house would cost to rent?

Yes. I'm in a 4-bedroom detached house that was built in 2007. No such houses in the estate with 4-bedrooms have come up for rent recently making it hard to compare but 3-bed semi's in the estate rent frequently for £550 monthly. The £50 extra is probably a realistic estimate for the extra bedroom and fact that it's detached.

tara747 wrote: »

My contents insurance costs me £100/year, with £45 cashback - effective cost £55.

So my £58 figure should really be £62.50.

tara747 wrote: »

Are you on a fixed rate, tracker or variable?

I'm on variable at the moment. I could have opted for fixed but I know that my LTV will allow me access to even better rates by next year. There is a risk that rates will rise. In my opinion, the risk of this happening is lower than the risk of the rent paid by most tenants rising over the next few years.

tara747 wrote: »

The ones with the best rates?

Yes. For example, Nationwide allow 10% overpayments annually. First Direct actually allow unlimited overpayments.

saverbuyer

I can see how it would work in a cheap house in a cheap area. Doesn't work in the areas in Derry I would want to blive in, Culmore, Limavady road etc.

marathonic

Everyones' comfort zone is different and that is evident in this thread.

For example, as a 30-year old, I've already build up a pension fund of twice my annual salary. With this in mind, I don't have a problem taking on mortgage debt that will extend until my 65th birthday because I know that I'm likely to be able to pay off the outstanding balance with my tax-free lump sum from the pension. This isn't actually my plan but, if an actual dream house that I absolutely fell in love with came on the market and this was the only way to get it, it wouldn't phase me in the slightest.

I do have one caveat though - mortgage term doesn't bother me but proportion of salary required to service the mortgage does. If a dream house required a payment of more than 25% of my salary, even with a 30-35 year term, I wouldn't go for it.

marathonic

saverbuyer wrote: »

I can see how it would work in a cheap house in a cheap area. Doesn't work in the areas in Derry I would want to blive in, Culmore, Limavady road etc.

I agree with this. Houses in Culmore Road and Limavady road tend to rent for about 50% more than what my house would rent for whilst the houses sell for almost double.

Likewise, houses costing about 50-60% the cost of mine rent for about two thirds the money. The cheaper the house, the more cost-effective it becomes to own as opposed to rent.

If these areas are your only options, renting does indeed work out cheaper for the moment. It then becomes a lifestyle choice. Except for the top 5-10% of earners, saving to buy a house in these areas is likely to take the best part of a decade. If someone is happy to do this, then so be it.

In the long term, I suspect that ownership becomes the cheaper option in all cases but, given the current market conditions, one couldn't be blamed for sitting on the sidelines waiting for a confirmation on a turn in prices.

saverbuyer

marathonic wrote: »

I agree with this. Houses in Culmore Road and Limavady road tend to rent for about 50% more than what my house would rent for whilst the houses sell for almost double.

Likewise, houses costing about 50-60% the cost of mine rent for about two thirds the money. The cheaper the house, the more cost-effective it becomes to own as opposed to rent.

If these areas are your only options, renting does indeed work out cheaper for the moment. It then becomes a lifestyle choice. Except for the top 5-10% of earners, saving to buy a house in these areas is likely to take the best part of a decade. If someone is happy to do this, then so be it.

In the long term, I suspect that ownership becomes the cheaper option in all cases but, given the current market conditions, one couldn't be blamed for sitting on the sidelines waiting for a confirmation on a turn in prices.

I have a friend who rented a 5 bedder off the the Culmore road for £650 a month (did need a bit of work). House would have cost £300,000.

In fact I don't think I've ever seen a house, in the city with a rent higher than £750.

Rents are unlikely to rise in the current environment. I think close to 40% of Derry households claim housing benefit.

Belfast isn't the same market. I think in the majority of cases you save several hundred a month (at least) renting.