What would you do in our position? In two minds...

aled247

Hello everyone! We need your advice please as we are in two minds...
Both myself and my girlfriend have been saving to buy a house for the last 2 years and in that time now have a total of approximately £17,500 broken down as followed:

£11,200 in top interest paying current accounts which we do not touch.
£2,200 in my HTB ISA (so worth £2,750 when buying house)
£2,200 in her HTB ISA (obviously also worth £2,750 when buying house)
£500 in my SAYE pot.
£500 in her SAYE pot.

We currently save £750 a month (£200 into each HTB ISA, £100 into each SAYE pot and £150 into the saving current accounts so these totals will continue to rise)

My predicament is that in my head I think that the more we save now for a deposit the bigger the mortgage/cheaper the cost will be for us which is logical. (we are looking for around 10% deposit or should I go for bigger deposit at this stage?)
HOWEVER, I also keep thinking that the longer we hold out the higher the house prices will keep going and we are just wasting money renting and would actually work out cheaper in long run for us to get onto one of these 5% mortgages (which I know are much, much more expensive than a 10% deposit mortgage, especially then having to pay back the government loan after 5 years etc)
We currently pay £800 a month for our rent at moment but we live in an expensive part of UK (Cornwall) and have a fairly large house.

Unsure if relevant but I am 25 and she is 23.

Essentially, if you didn't own a home, were renting but saving £750 a month and had £17,500 in the bank would you get a mortgage now, if so a 5% one, a 10% one or would you hold out and save for longer?

HappyMJ

You aren't wasting money renting. If you buy now you will have interest to pay on the mortgage, buildings insurance and maintenance costs to pay out. Add all that up and it's very close to the cost of renting.

I own a house that I let out and hardly make anything. I also rent a flat that we live in and the difference in cost between buying the flat and renting it is so small it's not worth buying. We would save about £10 per month if we were to buy it.

I would save for a bigger deposit and get a lower interest rate on your mortgage. You will save much more in the long term.

aled247

I don't wish to buy a property/get a mortgage to make my monthly outgoings less, I would be more than happy with a mortgage for a similar property where my mortgage payments were around £800 a month, heck I would happily pay more as I know I am paying off MY debt and not my landlords.

What I really need to understand is what would the mortgage interest difference in £ be between an average 5% deposit mortgage and 10%-15%-20% etc over a typical 25 years does that make sense?
Would it be worthwhile getting a 5% or 10% deposit mortgage now as the interest total would be less than if I waited another 12 months paying rent. Yes I would have an additional £9000 towards the deposit, combined with an extra £1200 from HTB ISA which would take my deposit to around £27,500 but additionally I would have spent an additional £9,600 on rent which would have gone into mortgage payments instead.
Hopefully this all makes sense.

On another point I don't understand why would it not be worth buying the flat you are in? If for arguments sake it costs the same in rent as it would monthly mortgage payments why would you not buy it and that way you are paying off your property and not someone else's?

Person_one

Can you afford to buy where you want to with the deposit you've got plus the amount you could borrow based on your salaries?

Could you afford the repayments on a 95% mortgage? What would your quality of life be like?

Could you afford the repayments on a 90% mortgage? What would your quality of life be like?

If you need to use a government scheme to buy an overpriced new build in order to get a 95% mortgage, then what are the downsides and are they worth it in your own circumstances?

Don't worry too much about how it all works out over 25 years. Nobody can see the future. Think now and about 5 years ahead.

Sky_

Have a look at some 5% and 10% mortgages, to compare the different interest rates.

Then put your expected mortgage amount and the rates you've found above, into this http://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator to compare what you'd save/pay over say the first 5 years of your mortgage.

Don't forget, most of your mortgage payments pay for the interest on the mortgage and only a small part of them pays off the mortgage itself.

Plugging different % rates into the calculator above will show you the true cost of waiting versus buying a house now.

Doozergirl

I'd be tempted to top out the HTB ISAs.

I don't know where you live, but house prices where I live have never really been that exciting in terms of movement.

aled247

Thank you for the calculators! They look like great tools I will try out thank you

I have thought about it but that will take another 2 years! Far too long for my liking unfortunately as I would have paid around 19k on rent by then for an additional 'free 6k' cant see the benefit.

I have looked at online calculators for Santander, Barclays and Halifax and they have all come up with approximately being able to lend us 200-205k based on our income/outgoings etc.
I don't think affordability would be a problem, as stated we already pay £800 a month rent and after all outgoings (and I mean ALL outgoings including spending money) we save £750 religiously every 4 weeks (both paid 4-weekly) so theoretically we could pay a mortgage of £1300 a month and still have £250 every 4 weeks savings (much less as no longer needing to save for a mortgage).

I haven't yet applied for a mortgage in principle anywhere as I have heard that will affect credit rating and no point doing until we have a property we wish to put an offer on, is this correct?

Sorry for all the questions, I consider myself very financially savvy when it comes to savings/loans/credit cards etc but mortgages confuse me so much

aled247

I live in Cornwall where according to some websites house prices have risen by 7% in last 12 months

Sky_

We applied for an agreement in principle before we started looking. It makes you far more attractive to sellers. Some estate agents don't take offers seriously unless you have an AIP.

It took a couple of weeks to get the agreement in principle from our chosen lender.

If house prices are really rising by 7% a year, then I'd buy as soon as I could afford to.

HappyMJ

aled247 wrote: »

I don't wish to buy a property/get a mortgage to make my monthly outgoings less, I would be more than happy with a mortgage for a similar property where my mortgage payments were around £800 a month, heck I would happily pay more as I know I am paying off MY debt and not my landlords.

What I really need to understand is what would the mortgage interest difference in £ be between an average 5% deposit mortgage and 10%-15%-20% etc over a typical 25 years does that make sense?
Would it be worthwhile getting a 5% or 10% deposit mortgage now as the interest total would be less than if I waited another 12 months paying rent. Yes I would have an additional £9000 towards the deposit, combined with an extra £1200 from HTB ISA which would take my deposit to around £27,500 but additionally I would have spent an additional £9,600 on rent which would have gone into mortgage payments instead.
Hopefully this all makes sense.

On another point I don't understand why would it not be worth buying the flat you are in? If for arguments sake it costs the same in rent as it would monthly mortgage payments why would you not buy it and that way you are paying off your property and not someone else's?

It's maths. Get a spreadsheet and work it out. Your HTB ISA is earning some good money. Spend it now and it stops growing.

The flat we're in is not our forever home. It's almost never worth buying something you do not want to live in permanently. I also have money in the bank. I earn more in interest than I pay out in rent so I leave my money in the bank and use the interest to pay the rent.

I pay £475 per month in rent. The purchase price of the flat is £110,000 plus let's say £600 in purchase costs. Let's say I have £110,600 and I get 5% interest on my money so therefore I get £465 per month in interest. Split between us getting 5% is not difficult. I've got regular savers, high interest current accounts and so on.

That's not even taking into account service charges and maintenance but I haven't taken into account capital gains. As this is a leasehold property I really doubt there is capacity for any capital gains to be made as time goes by the lease gets shorter and I would have to pay out thousands to extend it.

You aren't paying off the landlord's debt. Any landlord who has taken financial advice knows the most tax efficient way to handle the investment is to have an interest only mortgage. The capital is still outstanding at the end of the term.

If you do buy with a 5% deposit you need to remortgage at every step. When you've got 10% equity remortgage on to a lower rate. When you get 20% equity remortgage again and when you get 40% remortgage again hopefully for the final time. Every time you remortgage you get better rates. It's a hassle but it saves you more in the long run.

It would be better just to start with a 40% deposit if you can and get the absolute best rates you can on the 60% you need to borrow.

HappyMJ

aled247 wrote: »

I live in Cornwall where according to some websites house prices have risen by 7% in last 12 months

I wouldn't trust websites at all. There was a rush on housing to beat the additional 3% SDLT charge coming in on second properties which inflated the market. You might find it drops by 5% over the coming year as landlords now do not want to pay 3% SDLT on second properties so are not putting any new money into housing.