Time to grow up

will369

Hi guys,

Abit about me....I currently live in Exeter with 2 flat mates, I have done for past 6 months. I pay £440 a month rent which includes, sky, wifi and all bills.

My work is a 30 minute walk away, I work 9-5 Monday to Friday

My parents live in a small village about 25 minute drive away.

Renting to me is just dead money. I really want my own place. Today my parents said if I was to move back with them they wouldn't charge me any rent. Maybe just help out with the food shop.

So I would be saving £440 a month.

I would then put £340 of that away each month into a savings account. 3 years of saving I will have £12,000. The other £100 will be beer money :beer:

I dont know if that is enough to put a deposit down on a 1 bedroom house? I don't know if the new government scheme would be better?

But the main thing is saving.

I havn't made my mind up yet as where I live now everything is on my door step. Shops, friends etc.

I know if I am with my parents im not miles away, but I dont drive. & its like a 45 minute bus journey.

So really just after advice on buying a house, saving and if you think moving is a good idea.

Wasn't sure where to post this thread

Thanks for your time

Scorpiojon

Rent free sounds great. A couple of questions you might want to ponder.

How well do you get on with your parents?

Could you use some of what you save in rent on getting some wheels to avoid the long bus journey? This was my first priority when i started working as i live an hours bus ride from town.

Are you good at budgeting? After all it'd be tempting to spend that rent free money on gadgetry and more booze..

Ultimately. It seems like you have great parents to offer that and i would of bit their hands off as long as you can stand being at home. Of course my parents would of been spoilt rotten with all the disposable income id have.

Good luck with your decision.

Thrugelmir

What's the cost of getting to work?

Porcupine

Scorpiojon wrote: »

Could you use some of what you save in rent on getting some wheels to avoid the long bus journey? This was my first priority when i started working as i live an hours bus ride from town.

But bear in mind that if you need to run your own car I'd budget £100-200pm on car expenses. Though it could be worth learning to drive: that means you might be able to live somewhere where the bus service isn't so good but the houses are cheaper.

A quick look suggests 1 bed places start at £80K for Exeter or £50-60K for Paignton (cheapest area within 30 miles), so a £12K deposit should be a good start towards that.

kidmugsy

Get a bike.

Mickygg

I moved back with my folks to save money. Best thing I ever did to save the money and now have my own place!
You must put the money away though and don't dip into it.
If you have to get car, this will eat away your money.
You do lose your normal life but I got on ok with my folks so it was fine.

xylophone

You might try a Santander 123 account - would your parents be willing to put a couple of the household direct debits on your account - could be your contribution to expenses rather than food money?

attila_

£16k (440 x 36) sounds a lot better than 12. You can have beer any time later on in life, not now!

jamesd

will369 wrote: »

I currently live in Exeter with 2 flat mates, I have done for past 6 months. I pay £440 a month rent which includes, sky, wifi and all bills. ... So I would be saving £440 a month. ... I would then put £340 of that away each month into a savings account. 3 years of saving I will have £12,000. The other £100 will be beer money :beer:

I dont know if that is enough to put a deposit down on a 1 bedroom house? I don't know if the new government scheme would be better?

The lowest prices I see for studio and one bedroom flats in Exeter is about £90,000. Many more are available in the £110,000 to £130,000 range. Park homes - caravans - start at around £120,000 though there are a small number below that. Two bedroom normal houses start at about £130,000 with limited supply in outlying areas and the majority not starting until about £160,000 and above.

To buy a house at 95% loan to value in the £160,000 and up range would take a deposit of around £8,000. 90% LTV £16,000. 95% mortgages are around 4.9% interest rate so borrowing £152,000 at 95% LTV would cost about £880 a month. 90% LTV mortgages are around 3.9% so borrowing £144,000 at that would cost around £752 a month. Both assuming 25 year term repayment mortgage. 85% mortgage with £24,000 deposit borrowing £136,000 at around 3.2% would be around £659 a month. A 75% LTV mortgage with £40,000 deposit at around 2.2% interest borrowing £120,000 would be around £520 a month.

Notice the way the interest rates available reduce as the LTV reduces, so the mortgage becomes even more cheaper than just due to the lower amount borrowed. If you were able to pass an affordability check you might well want to be owner and let rooms in a house share to make it affordable.

However, you probably don't really need a house unless you anticipate having children soon. It's much more likely that you only really require a flat to meet your needs. So lets see what a £110,000 flat does to the numbers instead of a £160,000 house:

95% LTV: 4.9% dep £5500 borrow £104500 cost £605.
90% LTV: 3.9% dep £11000 borrow £99,000 cost £517.
85% LTV: 3.2% dep £16500 borrow £93,500 cost £453.
75% LTV: 2.2% dep £27,500 borrow £82,500 cost £358.
75% over 30 years: £313

You can't get to £440 a month even at 75% LTV for the house on a 25 year term. Maybe a longer term. You can for the flat and you can run the numbers yourself for a £90,000 flat to see what that does to them in terms of making it faster to get there.

Eve the full £440 a month is just £5280 a year. That'd get you into the flat after a year but at £605 a month mortgage. Another year and you'd be at £517. One more to get to £453.

By now you probably have some idea why the traditional first time buy is a flat that needs work in a less than perfect area. You can get into it much faster.

If you're happy to share and if your parents are willing to help you with a deposit after you've saved for a year you could consider a house where you let out the rooms to others or a two bedroom flat. This way the income can help with the mortgage and repay the deposit. It would be really useful for cost if you could get to a 25% deposit level with help because of what that does to the available mortgage interest rates.

If you go the flat route you could do something like repaying your parents half of the monthly payment difference if they give you the extra deposit. Give because that's what mortgage lenders requirement even if you do plan to repay it at some point, informally. The difference between £605 a month after one year and £358 a year after 5 years of saving is very substantial. Perhaps show them this post to see what the plan might be so they can see how it pays. The £22,000 of gifted deposit could be repaid by the £257 lower mortgage in 7.5 years if you paid them no interest. The extra £45 a month drop from a 30 year term cuts that to 6 years.

You should also expect that mortgage interest rates will be higher in one year and even more so in three or four or more, when they are quite likely to be twice the rates I've used here at the cheap end. You'll need to pass an affordability check at 6% or so assumed interest rate. A 30 year or longer mortgage will help you to do that.

If you broaden the area to within ten miles of Exeter you can get flats for £60-70,000 in Dawlish or Sidmouth. That greatly improves the ability to buy but you'd need to consider transport. A one month season ticket from Exmouth to Exeter is £82.60 a month on the Avocet line. That reduces the potential gain from buying there if you use that instead of some other way to travel.

jamesd

Now, all that was using traditional mortgage lenders. You don't need to use a traditional mortgage lender if your parents have more money available, perhaps from a mortgage that they could take out on their own home. That may let them offer you a mortgage at a lower interest rate than you can get, with normal security over your home for them as lenders, because they might be able to borrow at the 75% or lower LT interest rate and pass that on to you. Huge difference to when you can get into a place and in your costs when you're there.

A house with sharers can make it quite quick to manage this, it's effectively a form of buy to let but with you as the property owner and doing the sharing of rooms with others.

If they don't simply want to pass on the mortgage cost they could also charge you 1% on top to make some money on it. This could make sense if they need more income.

If they are retired and living on investments they could quite easily beat deposit account savings rates this way by using investments as part of their diversification plan.

You already know that you can get £440 a month from a couple of tenants in a suitable place because that's what you're doing now. There's scope here for you and your parents to make money provided yo buy a place at a suitable purchase price. Price is critical to it working well.

Another way of doing it would be pure BTL with you as their tenant, funding the property purchase as before with a mortgage or increased mortgage on their own property. The interest remains deductible from rental income. They could agree to you taking a cut of the rent for being resident property manager. However, this doesn't get you an ownership interest, just lets you live in a place with a friendly landlord. The mortgage with your parents the lender is the best deal for you and it can be structured to have variable repayments depending on whether you have trouble finding tenants for the room(s) or not.

Get this sort of thing right with you as the owner, stick to one room just for you and the rest shared, and you can end up owning the place outright from the renting room profits in very few years.

bigadaj

jamesd wrote: »

The lowest prices I see for studio and one bedroom flats in Exeter is about £90,000. Many more are available in the £110,000 to £130,000 range. Park homes - caravans - start at around £120,000 though there are a small number below that. Two bedroom normal houses start at about £130,000 with limited supply in outlying areas and the majority not starting until about £160,000 and above.

To buy a house at 95% loan to value in the £160,000 and up range would take a deposit of around £8,000. 90% LTV £16,000. 95% mortgages are around 4.9% interest rate so borrowing £152,000 at 95% LTV would cost about £880 a month. 90% LTV mortgages are around 3.9% so borrowing £144,000 at that would cost around £752 a month. Both assuming 25 year term repayment mortgage. 85% mortgage with £24,000 deposit borrowing £136,000 at around 3.2% would be around £659 a month. A 75% LTV mortgage with £40,000 deposit at around 2.2% interest borrowing £120,000 would be around £520 a month.

Notice the way the interest rates available reduce as the LTV reduces, so the mortgage becomes even more cheaper than just due to the lower amount borrowed. If you were able to pass an affordability check you might well want to be owner and let rooms in a house share to make it affordable.

However, you probably don't really need a house unless you anticipate having children soon. It's much more likely that you only really require a flat to meet your needs. So lets see what a £110,000 flat does to the numbers instead of a £160,000 house:

95% LTV: 4.9% dep £5500 borrow £104500 cost £605.
90% LTV: 3.9% dep £11000 borrow £99,000 cost £517.
85% LTV: 3.2% dep £16500 borrow £93,500 cost £453.
75% LTV: 2.2% dep £27,500 borrow £82,500 cost £358.
75% over 30 years: £313

You can't get to £440 a month even at 75% LTV for the house on a 25 year term. Maybe a longer term. You can for the flat and you can run the numbers yourself for a £90,000 flat to see what that does to them in terms of making it faster to get there.

Eve the full £440 a month is just £5280 a year. That'd get you into the flat after a year but at £605 a month mortgage. Another year and you'd be at £517. One more to get to £453.

By now you probably have some idea why the traditional first time buy is a flat that needs work in a less than perfect area. You can get into it much faster.

If you're happy to share and if your parents are willing to help you with a deposit after you've saved for a year you could consider a house where you let out the rooms to others or a two bedroom flat. This way the income can help with the mortgage and repay the deposit. It would be really useful for cost if you could get to a 25% deposit level with help because of what that does to the available mortgage interest rates.

If you go the flat route you could do something like repaying your parents half of the monthly payment difference if they give you the extra deposit. Give because that's what mortgage lenders requirement even if you do plan to repay it at some point, informally. The difference between £605 a month after one year and £358 a year after 5 years of saving is very substantial. Perhaps show them this post to see what the plan might be so they can see how it pays. The £22,000 of gifted deposit could be repaid by the £257 lower mortgage in 7.5 years if you paid them no interest. The extra £45 a month drop from a 30 year term cuts that to 6 years.

You should also expect that mortgage interest rates will be higher in one year and even more so in three or four or more, when they are quite likely to be twice the rates I've used here at the cheap end. You'll need to pass an affordability check at 6% or so assumed interest rate. A 30 year or longer mortgage will help you to do that.

If you broaden the area to within ten miles of Exeter you can get flats for £60-70,000 in Dawlish or Sidmouth. That greatly improves the ability to buy but you'd need to consider transport. A one month season ticket from Exmouth to Exeter is £82.60 a month on the Avocet line. That reduces the potential gain from buying there if you use that instead of some other way to travel.

Good advice James but sometimes there's a fine line between sound financial recommendations and stalking!