How much deposit do I need?

lisyloo

You really need a good mortgage broker to sort this if you are self employed

Yes I agree.
Whilst we don't have the deposit that's not an immediate issue.
I have a much better idea of the deposit required now - which was my objective - thankyou.

Currently we are renting the flat and putting large amounts into pensions with significant tax, NI & corporation tax benefits.
So we're quite illiquid but operating a good tax avoidance strategy.

The decision is really whether to continue with the current strategy which doesn't put us in a position to buy or whether to become more liquid to put ourselves in a position to buy for which there is a significant "lost opportunity" cost.
I am aware you can go back a few years for pension tax relief but I don't think that would totally solve the issue.

My gut feeling is that I'm inclined to rent for 6.5 years in favour of flexibility, lower risk and massively greater diversification (pension funds vs single property), but I am now better informed - thankyou again.

Thrugelmir

lisyloo wrote: »

m we need and put the rest into pensions which is tax efficient. That doesn't look good for mortgage afffordability.

Then you should be well on your way towards your objective with only a relatively short period of time to go. Are you planning to take the tax free lump sum and/or draw an income that will repay the mortgage debt?

lisyloo

Then you should be well on your way towards your objective with only a relatively short period of time to go.

Agreed. Although that relatively short period is still important because it's the highest earning part of our careers.

Are you planning to take the tax free lump sum and/or draw an income that will repay the mortgage debt?

No. That wouldn't be the intention.
The intention would be that the sale of the flat covers the remaining mortgage or if we rented it out then the rental income covers the mortgage payments.
Clearly there are risks and it's only something I'd go into if there is a good chance of it stacking up.

At the moment it doesn't stack up. I've done some detailed maths and the cut-off point for buying and renting for our non-typical situation is 9.5 years, so if we're only staying London for 6.5 years then we're better off renting.

However if things change e.g. London house prices drop, then it might stack up at some point and if course we could only get into the market if we had the deposit available.
My gut feeling right now is that we should just rent, but I would be prepared to change my mind if there is a significant change.
I guess it's the possibility of London prices falling that has made me think about it although I think significant falls in central London are unlikely and therefore I think the mostly likely scenario is renting for 6.5 years.

Mortgage_Mark_2

lisyloo wrote: »

There is an issue at the moment in that we both pay ourselves the minimum we need and put the rest into pensions which is tax efficient. That doesn't look good for mortgage afffordability.
If we wanted to change our strategy so that it's right for getting a mortgage then how long would we need - 6 months?

At least a year - income will be proved by way of self-employed accounts or HMRC SA302's which won't reflect the 'right' income until that year is finished.

lisyloo

Thanks guys.
This would require a significant and costly change to the way we manage our finances.