Save a bigger deposit, or just buy now??

herbiesjp

efunc wrote: »

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?

You appear to be in a very strong position.

Your income is good. The house prices you are looking at seem ok for the income you have, and the deposit you are putting down - this assumes a good credit history and no other debts in the background.

However looking at a mortgage of 5 times your salary would need some careful consideration and analysis of the costs you are likely to start paying once you have your own property - as London is an expensive place to live in as I know only too well!

Different lenders have different tiers for placing there deals e.g. one lender may have a 5.55% deal if you were only borrowing 65%, which would then increase to 5.70% if at 70% borrowing and then 5.9% at 90% borrowing (these figures are made up, but just to give you an idea). Another lender may have a 5.6% deal for any mortgages up to 90%. So in answer to your question about the deposit, the extra 10k you are loooking to save may impact on the deals with some lenders and not impact with other lenders.

However, what I would suggest is keeping an amount of these funds (or the extra £10k yo are looking to save) as easy access as emergency funds. Not everyone is in your fortunate position, but you should consider keeping some aside to cover unexpected costs, and potential time off work/redundancy

poppy10_2

efunc wrote: »

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).

This is very sensible, you'll go far my son. :T

efunc

sazzacat wrote: »

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.

Thanks, I had no idea of the stamp duty tier! Still a bit green... How does that work, is it a set fee/percentage at each threshold?

You're right about ancillary costs. that's something I haven't got a great deal of experience about, but I'm aware I need to give myself additional allowance for these on top of my mortgage repayments. Roughly what is the cost of ownership on a monthly basis? the tax band for example is something i need to research. I haven't decided where I'm going to buy yet, but I'm contemplating Middlesex or west London; but then south, east or north is equally viable!

Is there somewhere I can research tax bands in each authority or does it vary street to street?

herbiesjp

These links should help:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_10010529?cids=Google_PPC&cre=Money - for stamp duty


http://www.upmystreet.com/ - for council tax rates

efunc

herbiesjp wrote: »

You appear to be in a very strong position.

Your income is good. The house prices you are looking at seem ok for the income you have, and the deposit you are putting down - this assumes a good credit history and no other debts in the background.

However looking at a mortgage of 5 times your salary would need some careful consideration and analysis of the costs you are likely to start paying once you have your own property - as London is an expensive place to live in as I know only too well!

Different lenders have different tiers for placing there deals e.g. one lender may have a 5.55% deal if you were only borrowing 65%, which would then increase to 5.70% if at 70% borrowing and then 5.9% at 90% borrowing (these figures are made up, but just to give you an idea). Another lender may have a 5.6% deal for any mortgages up to 90%. So in answer to your question about the deposit, the extra 10k you are loooking to save may impact on the deals with some lenders and not impact with other lenders.

However, what I would suggest is keeping an amount of these funds (or the extra £10k yo are looking to save) as easy access as emergency funds. Not everyone is in your fortunate position, but you should consider keeping some aside to cover unexpected costs, and potential time off work/redundancy

Yes, you're right. a great deal of any saving will come from just shopping around for the best mortgage deal, irrespective of my deposit. but if nothing else a large deposit will just shorten the term of any mortgage hopefully and reduce it's burden in years to come.

I think I can save about 20k in the next 12 months and about another 20k if I wait another 12 months (although I don't wish to wait that long unless it's really advantageous!)

The total cost of ownership in London has me a little concerned though as I haven't got a clear figure to that yet. tax, utilities, maintenance, etc. But with payments of say £1500 a month I shouldn't be stretching myself too far and will probably allow for additional expenses.

I'm also unsure about my credit history and that may actually be the biggest factor if I find myself in the sub-prime category! The problem is that I've never had any loans and hardly use my credit card because I prefer not to be in debt. I think my sparse credit record may be a disadvantage, but I'll look at ways to build that in the next 12 months. get another CC perhaps?

herbiesjp

efunc wrote: »

Yes, you're right. a great deal of any saving will come from just shopping around for the best mortgage deal, irrespective of my deposit. but if nothing else a large deposit will just shorten the term of any mortgage hopefully and reduce it's burden in years to come.

I think I can save about 20k in the next 12 months and about another 20k if I wait another 12 months (although I don't wish to wait that long unless it's really advantageous!)

The total cost of ownership in London has me a little concerned though as I haven't got a clear figure to that yet. tax, utilities, maintenance, etc. But with payments of say £1500 a month I shouldn't be stretching myself too far and will probably allow for additional expenses.

I'm also unsure about my credit history and that may actually be the biggest factor if I find myself in the sub-prime category! The problem is that I've never had any loans and hardly use my credit card because I prefer not to be in debt. I think my sparse credit record may be a disadvantage, but I'll look at ways to build that in the next 12 months. get another CC perhaps?

You can always go to the Equifax or Experian websites to apply for a copy of your credit file.

It will give you an indication as to your current credit status, although a lending decision is not always down to the score shown on these alone