Save up and buy outright... crazy idea?

Vicky496

I am a recent (2 months ago!) graduate of the debt free wannabe boards and wanting to put savings into owning our own place...

I find it really difficult not to think about mortgages now as another debt black hole - my head says it's a 'good' debt because of all the money we'd get to keep that currently goes to our landlord, but my heart feels so free now I have no debt and doesn't want to be shackled again!

I save about £800 - £1100 a month depending on how focussed on not spending and instead making money that I am. You can still buy a 2 or 3 bed flat type property where we are for about £80,000 - £120,000... and it was similar back in 2006 when I last considered buying. Our rent is £250 each per month so it doesn't feel like we're giving relatively that much to the landlord.

Anyone else thought about just saving until they can buy a place outright? Is that a crazy idea? What have I not considered?

With DH's savings as well it will probably take us around 5-6 years to save up for the cheaper end of this... course the risk is that the prices jump I suppose! (Me and husband have historically kept our finances separate, initially so my credit rating didn't mar his, and after such a long time we're stuck in our ways ).

If there is a thread already on here that discusses this can someone point me to it? :beer:

HappyMJ

If your rent is £250 then that will always be cheaper than buying.

Always do a rent/buy calculation on the property you are interested in.

Based on my calculation £250 a month could support a mortgage of £50,000 at 6% interest only. If you had savings of £50,000 you could always just put the savings in the bank at a net rate of 2.4% and earn £100 a month in interest. So the net cost is actually £350 per month (the interest paid and the interest lost on your deposit). That's more than your rent as long as the property you're in is also worth about £100,000.

If you owned a property you would also have purchase costs then you would have maintenance costs. A leasehold would have service charges.

Vicky496

Oh, should have said that's £250 each - so £500 a month, don't know if that makes a difference?

Vicky496

Actually I see what you did there - the £50,000 is split between us too.
So it would be more expensive to have a mortgage than to save up and buy outright?

Vicky496

Has anyone else done this? Struggling to believe it might be cheaper to save up and buy outright (it feels like wishful thinking!).

Vicky496

I was just googling on this topic again... there seems to be no information at all on just not getting a mortgage in the first place!

I guess people don't check this forum as often as the DFW board or maybe I've posted in the wrong place, but if anyone does know of an existing thread about this I'd be very grateful!

If no one's discussing it already, maybe we need to start the conversation?

Is anyone else considering this?

MissOptimistic

I believe that is what 'pennyforthepot' is planning to do, you could check out her thread?

gallygirl

You could try posting on the house buying thread but they get pretty argumentative on there (Buy now because prices ALWAYS go up. No, wait, because a 50% crash is on the way).

Try playing with figures on here:
http://www.whatsthecost.com/snowball.aspx - you haven't said what your other half could save so hard to tell. However, the rent is £500 and mortgage payments on a 100k mortgage are around the same so why would you want to rent when you can pay down your own home? You won't be able to get a savings rate to match inflation so your savings would be losing value every year, so even if house prices stay level with inflation it would take you longer to save.

Great position to be in though, well done :T

tootallulah

Not a crazy idea but quite hard to do! How about saving 25% and then know that you will hammer the mortgage to nothing in the same amount of time it would have taken you to save the full amount. That way you get the security of ownership and will own out right in the same amount of time as saving up. Or possibly less as you are already paying the equivalent of interest in £170,000 mortgage.

Vicky496

Thanks for the replies

MissOptimistic, I just went and found pennyforthepot's thread - it's exactly what I want to do! It's going to take some time to read through though

gallygirl, DH's savings are a bit unpredictable - he's self employed and his income varies each month, always has a good chunk of expendable income, but it makes it difficult to work out how much extra he can save regularly. That's why I had to be a bit vague about how long it might take us - if it's just me saving (and not relying on him to save anything at all) then it would take between 6 yrs and 8yrs 4mnths to save up for the cheaper housing option. In reality I think with him saving it might be a bit quicker than the 5-6 years I said in the original post, but I was being a bit cautious because of the unknown-ness! He generally saves at least £3000+ a year though which would make 5 years quite do-able.

Him being self employed is also another reason I'm considering this mortgage free option of eventually owning a house... even if we jump through all the hoops needed to get a mortgage with one of us self-employed there's a reason for those extra hoops to exist in the first place (to protect buyers/lenders from defaults). I don't want to end up scraping together a mortgage that there's a chance we'd have trouble affording.

I used the mortgage calculator: http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator#result

If I put the debt is £80,000, with interest at 6% then the payments are £522 a month...
That's £22 a month more than our rent.
After 5 years we'd still owe £72,840.

If I use the overpayment calculator with a debt of £80,000 and rate at 6% with an overpayment of £778 (assuming I can pay £800 more than the rent each month; the lowest amount I usually save, leaving extra for maintenance etc)
We would own the house in just over 6 years.
After 5 years we would owe £17,393 still.
AND in total over the 6 years we'd have paid £15,601 in interest.

BUT in 5 years if we were just saving up (mortgage free) we'd pay £30,000 in rent... so it looks like a mortgage that you overpay IS the best option.
I suppose there must usually be fees for overpaying though that I don't know about.

getmore4less

I goes in cycles so it is down to timing which is often not easy.

What you compare is renting money against renting property.

There are also the friction costs of buying and selling so jumping in/out is not an option but getting in at the right time improves the financial benefit


The issue with renting the money is you are also responsible for the upkeep of the place when you rent property the landlord is(for most of it).

Paying down the debt is like saving you create equity and reduce the cost of renting the money at the same time.

what you end up with is a rent free future(and a lot of equity in a property), if you stay renting you need to build up a large pot of cash to generate the income to pay it.

There comes a point where a sell and rent again can free up the capital.