Mortgage or cash purchase ?

spiritus

I am going to be buying my first house in the next few months but need some advice.

My plan was to put down a sizeable deposit (approx £ 75 k) and then take out a relatively small mortgage i.e. £ 50k to buy a nice, modest house. However, after talking with a neighbour who's been property developing for a few years I am now even more confused as he said he would strongly advise me to take out as high a mortgage as possible (100% if possible).

I'm from the old school of not wanting to have much debt weighing on my shoulders but what he was telling me has made me think twice.

I'd be grateful for your thoughts.

Lazy_Runner

Since your property developer didn't say why you should take a high mortgage, let me make a few guesses:

If you get the bank to lend you money for an asset (or even a liability), then that will leave your own money to be spent on other things, be it further investments (or not).

You are right about the debt, and if you take a high percentage mortgate, the interest rate will be higher.

If you ask on the Mortgage free board, they will say have a small a mortgage as possible. If you still want access to the cash, take an offset mortgage for a large value, but keep your savings with the same product/institution.

Or you could take a large mortgage, if you can afford the payments. But then with your cash you should invest in something that gives you a better return than house price inflation. (However that is another topic given potential house price slowdown, high interest rates etc; another can of worms). When I mean a better return, that is either increase in value, or a very good income.

On balance I would keep savings equivalent to 3 - 6 months net salary (or living expenses). This is incase things go pear shaped.

I would then use the rest for the house depsit.

HTH.

JoeK_3

It's horses for course, what's right for him may not be right for you.

Stick with what you're comfortable with.

JoeK

herbiesjp

Do what is comfortable to you - not what other people like to do

If you prefer a small mortgage then go for it - not everyone is the same, and everyone has different circumstances and priorities

Redbedhead

As a property developer he may be suggesting that because the interest on the mortgage is tax deductible on a BTL property. It has no impact on a property that you live in.

Maybe consider getting an offset mortgage? Then you can keep access to your savings but have them reduce the mortgage interest payable.