Debt v equity

w00519772

I am thinking about buying an apartment for 139950. I could actually afford a house for 180k. I believe that house prices will rise more over the next five years so I believe I should be more adventurous.

I am wandering if I am being too cautious. I could live relatively comfortably with a 150k mortgage.

Alternatively I could make overpayments on a 139950 mortgage and pay it off over a shorter term. I guess the question is should i be looking at borrowing more or paying more equity quicker?

BitterAndTwisted

In my opinion freeholds are always better than a leasehold. If you can afford a house, even when interest-rates inevitably rise, I say go for a house.

w00519772

BitterAndTwisted wrote: »

In my opinion freeholds are always better than a leasehold. If you can afford a house, even when interest-rates inevitably rise, I say go for a house.

Thanks. I think I have confused. The question isn't about house v apartment. There are houses and apartments in both price brackets. The question is about debt v equity.

egoode

I would say go for what you feel most comfortable with and that suits your lifestyle. I know I could afford a house but it would mean being further from central London and a bigger mortgage so instead I'm getting a flat which is much closer to the city and I should be able to pay the mortgage off in 10 years. That's what I feel comfortable with but I know many others will say I should have gone for a house.

Beige

I don't see this as a choice between debt and equity... it a choice about the size/value of property you want to buy.

If property values rise then you will be better off if you have bought a more valuable property in the past (generally).

If I was you I would be asking myself:
1 - Do I think the house and the apartment are both likely to increase in value by the same %?
2 - Does the apartment come with hidden charges (service etc and future lease extension fees)?
3 - Would buying the house vs the apartment have any impact on: your mortgage interest rate?
your ability to refinance in future (so you can stay on a low rate)?
your ability to repay if interest rates increase in future?

ValHaller

w00519772 wrote: »

Thanks. I think I have confused. The question isn't about house v apartment. There are houses and apartments in both price brackets. The question is about debt v equity.

Yes, we are aware of what your question is. B&T is effectively saying that if you can afford a freehold house, having the freehold is much more important than considerations of debt vs equity. And I agree

Beige

There are houses and apartments in both price brackets. The question is about debt v equity

OK, well for a given value property you will be able to have some choice over the value of debt you use to finance it, I guess this is what you are referring to.

Mortgage interest rates are higher than savings rates and effectively shield you from tax on savings interest, so it is inefficent to have a large savings balance when you have a mortgage. From this point of view you should take a smaller mortgage.

Prothet_of_Doom

Interest rates are low. What rate would it have to rise to before you'd start to bleed?
If you had a spare room, one back up plan would be to rent it out if thet happened.
I'll tell you what happened to me.
1989, my mother suggested that we should get the 'best' house we could afford, because as a new graduate, my wages would rise rapidly. Jointly we could borrow £60K. We thought about it and decided that as we were getting married and wanted a family, that we'd only borrow £45K. Interest rate was 9.5%. Within a short time the interest was 15.5% and we were very skint.
In 1998, we moved to our current house, and for £50K mortgage we got it, but had we taken on a £65K mortgage we could have got the same house with a double garage, and a corner plot instead of a shared drive and tiny garden. Interest rate was 8% and dropped and dropped over the next 15 years. We eventually fixed at 4.6% for 10 years in 2003.
I'm glad we didn't take on a larger mortgage in 1989, but sad that we didn't 9 years later.