Save a bigger deposit, or just buy now??

efunc

I'm really considering taking the plunge soon and buying my first property. I'm only stalling because I'm trying to scrape together the biggest deposit I can get my hands on first so that I'm not paying twice over in interest for the next 25 years. Of course, this is a never ending saga but I'm thinking of giving it another 12 months and thereby adding an extra £20k to my deposit maybe. Two years more and I could be looking at three times that amount again.

Here are the figures -

my salary - £40,000
current savings/deposit - £40,000
Looking for a house in London for £200,000 - 250,000
currently living in parents house with low'ish overheads

It seems there are a fair few experts here. So, does this make sense or is it wiser to just buy any old house now, even with a smaller deposit and higher mortgage costs? i.e., does the current appreciation of property outweigh the potential of lower cost of mortgage by waiting 12 months and gathering a more substantial deposit?

My current reasoning is that over the next 12 months house prices are not going to rocket, so I've got time on my side to make the right choice and save more money. I can save around £20,000 a year so I figure house prices in my budget need to rise by more than £40,000 in this same period to outweigh the advantage of waiting (I really don't see that happening, unlike a few years ago perhaps). On the other hand interest rates are still relatively low right now so if I bag myself a favourable long term fixed-rate mortgage at current rates I may be better off? I'm guessing that a £50k deposit will get me a good deal on a mortgage but I don't know if there's a 'cut-off point' where it's not as great a factor... Like all FTBs I'm obviously inexperienced and naive. Am I on the right track or is my maths woefully flawed?

Redbedhead

I think once you have over a 10% deposit you don't get particularly better interest rates - that does seem to be the cut-off.

Only you can tell what is right for you. Lots of people will have an opinion on what is happening with the housing market etc but it comes down to whether you have found a house you like in your price range really. In your situation you have the option of being picky and waiting to get something you really love and not just jumping on the first house you see so I would suggest you keep an eye on the market and the houses coming on and get an idea of what you can get for your money.

efunc

thank you, that's good advice. I'll definitely start monitoring and researching the market for a few months until I get a better idea of what to look for. I also have a very sparse credit record because I've never taken any loans so maybe I should work on building that for a few months.

Redbedhead

Do keep an eye on the market - you may find something that is perfect for you when you least expect it! I did when I bought my first house and it was 100% the right move for me and I have never regretted it. It was probably 6 months earlier than I had originally planned but it was exactly what I wanted in the location that I wanted and still had lots of original features.

We are moving from the house now and I will be gutted to move even though I know we are moving for sensible reasons and it is the right thing for us.

wymondham

It's a tough one isnt it?!

If only we knew exactly what was waiting for us in the months ahead with regards to house prices/interest rates etc.. ! General consensus seems to be house prices may be stabilising and possibly going down, with interest rates likely to peak end of this year, maybe dropping next year?

As you're able to save for a significant deposit, and in no rush then I would personally hold fire to take advantage of the 'possible' downturn if you'll be looking to move on again in a short while, but if you find somewhere you love and will suit for a good few years then a slight short term drop in price won't be a problem

As with this game, you pays your money and takes your chances!!

bluspark73

We have just bought a house in london earlier than originally planned. It was a bit of a fluke - we happened upon a property through a friend and looked at it out of general interest/research and it turned out to be what we were looking for so we've jumped in 9 months earlier than planned. However the nature of property settlement means that in effect settlement is likley to take between 3-4 months during which time we will continue to save and add to our deposit. I agree with Redbedhead that it is well worth keeping an eye on the market looking out for a property that suits your needs and if you come across it sooner rather than later then you will be in a position to buy (using the pre-settlement period to bolster deposit further) and if it is later then so be it. As you say you are unlikely to lose out to price growth pressure in the next 6-12 months anyway.

Also one other suggestion is to make sure and pay all the fees and costs you can up front (eg mortgage application fee) etc to avoid having costs compunded by being added onto you loan.

efunc

yes, definitely, I'd want to pay as much as I can upfront as I hate the idea of borrowing. roughly what kind of costs are they likey to be? I've just factored in about £2-3k.

If anything I find it's a mental thing. Once you've made up your mind you're going to buy a place it gets boring to wait 12 months! even though there's no real rush and waiting would probably be more cost effective. hope i don't do anything rash!

livalicious

hi efunc, i dont have any useful advice, just a fellow ftb sharing ur sentiment about being ready to buy a house now. Just like u I hate the idea of borrowing money, ive only ever bought on credit once (£50 and paid it back the next week!) and would have liked to hold off and save more towards our deposit. At the moment we have 10% deposit, fees, furniture and miscellaneous saved up. Weve been renting for what feels a lifetime, and have had it up to here with doing that, we just want our own home now. The general consensus on MSE is to hold off as the market is cooling, but that could be another year, and another year.... Frankly we feel like we gonna do what we feel is right for us at the moment, our budget for a property is set at a price we can comfortably afford, we have even factored in a few rate rises that we would still be able to afford.

You are fortunate in that you have low overheads and able to save quite a big chunk, and you can look for your dream property at your own pace. I wish you well and good luck in whatever you decide to do!

efunc

Hey, thanks for the encouragement! reading around this forum I can see that my circumstances are very particular. Most people value the benefit of leaving rented accommodation much more than the cost of buying a big loan prematurely, and that forces their hand. I have pretty modest rent and living costs and can afford to wait it out a bit longer than most it appears.

However, there's a psychological factor too. A couple of weeks ago I wasn't sure what I was doing and I wasn't planning on buying a house so it wasn't on my mind. Now it's all I can think about and my mind's sort of adjusted to the idea even though there's no real urgency! That’ll be a challenge to live with.. :rolleyes:

efunc

However, this article has made me feel a bit jittery about waiting too long:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aLHJ4TKSRS90&refer=exclusive

firesidemaid

if you have time on your side and a large deposit already AND you are a FTB in a good position you could look at properties you like that are a little over your budget (or less) and try a few cheeky offers.

if someone really needs to move they may accept - so may even get a better deal in the run-up to christmas.

have you thought about areas yet or looked at what you can afford ordrawn up a list of what you require from a property?

flats will have regular monthly maintenance payments, think about travel costs, council tax bands and the 250k stamp duty level.

ooh! it's so exciting. theres nothing to stop you getting a mortgage in principle offer and having a look. btw, have you thought about a lender yet? you can book an interest rate, but then not necessarily use it for the next 6 months. find a good fee-free whole of market broker.

good luck x