Best approach?

WorriedBorrower

What is the best approach for a first time buyer in your opinion under the current circumstances?

1) Get the maximum credit you can afford so the capital gains in the property valuation in the first N years can be maximised. In this case, overpayments would be minimised because mortgage repayments would take a larger share of the income. Also, in the first years in the mortgage, you pay more interest than capital. The security margin for an eventual rate increase is also minimised.

2) Don't take the maximum you can afford (buy a simpler/smaller house) and overpay as you can save. Stay less time in the first property as you increase equity by overpaying and property value increase.

I've taken 2) because I believe I spend less with interest. But some people say I am wrong... But for me, option 2) makes sense and it less risky. What you think?

Generali

WorriedBorrower wrote: »

What is the best approach for a first time buyer in your opinion under the current circumstances?

1) Get the maximum credit you can afford so the capital gains in the property valuation in the first N years can be maximised. In this case, overpayments would be minimised because mortgage repayments would take a larger share of the income. Also, in the first years in the mortgage, you pay more interest than capital. The security margin for an eventual rate increase is also minimised.

2) Don't take the maximum you can afford (buy a simpler/smaller house) and overpay as you can save. Stay less time in the first property as you increase equity by overpaying and property value increase.

I've taken 2) because I believe I spend less with interest. But some people say I am wrong... But for me, option 2) makes sense and it less risky. What you think?

1 works if inflation is high, 2 if inflation is low. 2 reduces your risk too.

Inflation is currently extremely low and has been, by the standards of the last 40 years, for the last couple of decades.

However, if you view your purchase of a house as an investment rather than as a place to live for a very long time then 1 makes more sense if you think house prices will rise. History tells us that house prices rise more often than they fall.

w00519772

I am a first time buyer in the process of buying a house. I was faced with the same question before I decided on a house.

I think house prices will continue to rise in the long term (there will be some falls). The banks say that no more than 28% of your gross (not net) income should be spent on a mortgage. I am about 19%. What is your percentage?

This means that I can put down a good deposit and perhaps pay the mortgage in 15 years. Are you buying alone or with a partner? Where are you buying?

duchy

One is definitely riskier in our boom/bust financial environment unless you are buying your "forever home" in which case over time it'll average out.

If you assume the current trend of keeping interest rates artificially low will not continue with successive governments -as seems likely- throughout the term of your mortgage then option 2 makes the most sense to most people.

WorriedBorrower

w00519772 wrote: »

I am a first time buyer in the process of buying a house. I was faced with the same question before I decided on a house.

I think house prices will continue to rise in the long term (there will be some falls). The banks say that no more than 28% of your gross (not net) income should be spent on a mortgage. I am about 19%. What is your percentage?

This means that I can put down a good deposit and perhaps pay the mortgage in 15 years. Are you buying alone or with a partner? Where are you buying?

My income/repayment ratio is around 25%.

I already bought, in WGC, Herts. It is OK, first time out of London, although I'm an EU foreigner, so wasn't sure on what to expect out of London, everywhere small, too quiet. People in Herts say WGC is expensive related to surrounding towns, but I am not sure why. It's cheaper than St. Albans and Harpenden though. Got the property evaluated again in March and it increased 7.5% since last July (7.5% in 8 months!?). And I had to pay 3% above the asking price after losing two previous bids offering the asking price!

Shortly after I exchanged the contracts, lots of nicer properties went on the market in the area around the same price! :mad: There were so few when I bought this one. Now I am "itching" to move again, as I am happy with the location, but not with the house.