First timer - mortgage, savings, investments, cash flow

expansion

Hello,

Asking this on behalf of my brother, his situation is:

- 38 male, single, first time buyer
- 50k/year income, no debts, 20k/year being saved/invested into S&S ISA
- 300k flat being considered for purchase
- 140k in accessible savings, 20k in savings as emergency fund, 80k in investments (S&S ISA)

I suggested that as the lowest mortgage rates are triggered when LTV is below 60%, he should aim for this as his deposit and depending on what rates he gets offered to consider either increasing the deposit to lower the monthly due or move from savings to investments (outside of S&S ISA)

His 140k in savings equates to a 46% deposit, a loan of 160k for the remainder equates to a 53% LTV which should benefit from the best rates. Getting a 160k loan on 50k/year income should still be realistic for a first time buyer even if banks are tighter these days it is slightly above 3x salary. The 20k emergency is reasonable and no point touching the ISA he is doing for longer term anyway in my view but I told him I would ask MSE for opinions. So what do you think?

ACG

If his investments are doing better than about 0.3% per year after tax it probably does not matter if he has a 40% deposit or 35%.

It would be best to sit down with a broker (or research himself) what the cost would be depending on the products available and seeing which would be the best option. Trying to do it without that info is a little difficult.

expansion

His investment strategy is solid so I imagine the portfolio would be far better than 0.3%/year. The real issue is losing the tax wrapper forever, not just opportunity cost for a few years. There is still a difference in rates by keeping LTV below 60% compared to next bracket of 75%, perhaps not much, but as the 140k is earmarked for deposit the question was whether it makes sense to go above this. I didn't see a point in doing this and was suggesting to put in just enough to get secure best rate so 120k.

ACG

The difference in rates with a 25% or 40% deposit is fairly minor.

To give an idea, with a 40% deposit one lender is offering a rate of 1.32%, the same lender with a 25% deposit is offering a rate of 1.41%.

All I would say is get some indicative idea as to what the figures will be for your brother on both options and compare that to his expected returns, you/your brother can then do the figures and make an informed decision.

expansion

You are correct the difference in rates is not much once deposit is above 10%. His 140k savings are getting about 1% interest apparently which is better than the 0.1% or so benefit of the lowest mortgage rates so aside from being able to secure a larger loan it seems better to go for a lower deposit. The difference wouldn't be much, only about 300 year and will probably disappear with the next round of savings interest cuts.

He wants to pay off the loan as quickly as possible. He would rather not liquidate his ISA to increase the deposit but is considering stopping contributing to it for the next few years and overpaying the mortgage instead. Opposite sides of the same coin in my view. I think he is just scared/nervous. I don't see the big hurry so I told him I think he should continue investing for the long term and pay the minimum for now, until or if rates ever go up.