Buying a home VS renting? Help!

twotonealex

Afternoon All,

Sorry for the long post :beer:

We live in Bristol (have done for 3 years) are thankful to be renting from a family member at a very very low rate of £500 total between myself and my partner.

My wage is £34K per year, my partners is £22K per year. (£56K combined)
I'm a 27 year old civil servant, she is a 26 year old trainee secondary school teacher.

I have been clearing £20K of debt from a previous business (0%) and is due to be paid off in May 2019 (5 months away, this coming year), we have also been saving. I have been paying off £1070 per month plus saving a small amount each month into a LISA for the bonus. Once paid off this will be able to be re-routed.

The dilemma we have is whether to buy a house this time next year or wait 3 years and then buy. We want to live in Bristol, and I have compiled 3 future years of spreadsheets based on projecting savings and interest including £15K her parents are giving us towards our first home!

The concern is if we don't get on the property ladder, that even with Brexit stabilising house prices currently, properties will increase in value beyond our reach and we will end up having to buy elsewhere.

If we bought next year it would be a 2 bed flat most likely (same size and area as we rent currently) which we would be happy with, however 2-3 years after we bought this we would be moving into a larger house/more family area to for future children.

The goal is to buy a 3+bed terrace which currently markets for £340K in the area we like, and has the potential to continue to grow a good rate in value over the next few years as Bristol grows in popularity more and more.

If we bought next year we would be maxed out at around £290-295K and would be a 2 bed flat centrally located. We would then look to sell this 2 years later and buy a the above proposed house.

The differences:

Buy in a year
We will be on £56K combined salary
We can borrow £266K
We will have saved a £30K deposit (including the gift from her parents)
We will buy a 2 bed flat in a popular area for up to £295K
We will be paying around £1075 per month on a mortgage based on
We will be on the property ladder, in a central Bristol location, which will most likely be subject to the same rise in value as the area we would like to buy a house in, in Bristol.
We will be able to continue to save around £650 per month on top of mortgage repayments to pay off the mortgage/save for next property (around £24K over 3 years)
Property will continue to grow in value by approx £15K (roughly if it Brexit doesn't kill any growth!)
Morgtage payments increase capital and reduce loan. (2 years or mortgage payments will have reduced loan from £266K to £249K (£17K increase in capital).
So £17K extra equity, £24K savings and £15K approx value increase over 2 years= £56K increase in equity/deposit towards dream house.

Buy in 3-4 years
We will be on a £65K minimum combined salary, based on my partner qualifying and getting a higher wage plus there is a chance I will have gone for promotion by then which will bump up my pay to £47K per year.
We will be able to borrow £310K
We will have saved around £85-90K deposit
We will be buy a 3 bed house, these currently sell for £350K, but we will be able to afford up to around £395K-400K, meaning that any increases in price from the current £350K we should be able to afford.
We won't be on the property ladder until then, which means any increases in property value will have to be taken into account in this amount we can afford (not as nice a house etc)
We continue to pay £500 'dead money' until we buy somewhere.

The thoughts/concerns I have:

- Brexit is having an effect with house prices stagnating/stabilising, I don't think there will be a crash in houses especially in Bristol, it is more of a question of how long they will remain stable for before climbing again.

- £30K deposit & approx £56K equity increase/monthly savings/value increase over 3 years if we bought next year = £86K ish deposit for dream home.

- £85K-90K deposit if we saved for 3 years and bought in 3 years.

Unless I've missed something - it works out pretty similar results give or take a few grand!

I've not taken into account the cost of moving/legal fees if we had to move for a second time (from purchased flat into dream house!).

Please can someone give me some idea? My gut is to buy a flat in a years time!

Sorry for the long post.

Thanks for any help you can provide!

TwoTone

AdrianC

twotonealex wrote: »

We live in Bristol (have done for 3 years) are thankful to be renting from a family member at a very very low rate of £500 total between myself and my partner.

My wage is £34K per year, my partners is £22K per year. (£56K combined)
...
I have been clearing £20K of debt from a previous business (0%) and is due to be paid off in May 2019 (5 months away, this coming year), we have also been saving. I have been paying off £1070 per month plus saving a small amount each month into a LISA for the bonus. Once paid off this will be able to be re-routed.
...
Buy in a year
We will have saved a £30K deposit (including the gift from her parents)

You're earning about £2,800/mo after tax, your other half £1,800. That's £4,600 between you. £500 to rent, £1100 to the debts... and how much of the other £3,000/month is going to savings? Only a "small amount"? What, a couple of hundred quid a month?

Cut that discretionary spending HARD, get the debts cleared faster, get that deposit built up. Prioritise.

(Yes, I appreciate there may be other non-discretionary spending such as student loans. But the fact is that you have £3k/mo unaccounted for...)

Buy in 3-4 years

We will be on a £65K minimum combined salary, based on my partner qualifying and getting a higher wage plus there is a chance I will have gone for promotion by then which will bump up my pay to £47K per year.
...
We will have saved around £85-90K deposit

So your monthly take-home will have gone up to around £5,000-£5,600, while you will redirect the £1,100 debt clearance money to join the existing £200ish into the savings pot, and you'll be adding about £1,200 of the £1,400-£2,000/month pay rise to that, while your discretionary spending rises beyond the existing £3k/month, potentially to £3,800/month...?

We continue to pay £500 'dead money' until we buy somewhere.

Rent is not "dead". It provides you a home. In this case, it's a very cheap home, heavily subsidised by your relative.

jonnygee2

Please can someone give me some idea? My gut is to buy a flat in a years time!

Here's how I would calculate this. I don't think home ownership is sensible, but you can do it yourself.

Note, though, I haven't included any crystal ball like projections about future house values. Because if you save the money you can invest it (say in stocks and shares) and those investments may or may not outperform the housing market. So really, I think it's about how much money is going into something you own and how much is going into someone else's pocket.

I am assuming you are taking out a 30 year mortgage at 2.1% interest, by the way.

Costs of Ownership (over 3 years)

Interest 14000
Service Charge 2000 (as you said it was a flat, assumption here)
Repairs 1500 (again, assuming new build flat and just a few small mishaps/repairs needed)
Disposal 2000 (costs of selling the property)

Cost of renting

Rent 18000


You can obviously play around with these figures as per need, but I don't believe buying is going to put you in a better financial position, mainly because the rent you pay now is only slightly higher than the interest you'd be paying on a mortgage. When you also consider that keeping the money in non-housing investments also gives you more flexibility (houses are notable a very illiquid asset!) I think you are better off being a renter, assuming you can continue in your current renting position.

Cakeguts

You are spending too much each month. Saving for the deposit is practice for the kind of saving that you have to do if you own a house and have to pay for all repairs and maintenance.



If you want to save for a house you have to spend only what you need to.



No car finance.



No expensive phone contracts get a cheap one.


No meals out.


No expensive holidays or even no holidays or get a tent and camp.


No takeaways cook food at home and don't buy drinks at work take a flask. Make your own lunchtime sandwiches.


Don't buy new clothes because they aren't this year's colour or fashion.


Put all spare cash into the savings for a house and keep on doing this.


If you are not prepared to save like this you are not going to want to own a house.

twotonealex

You're earning about £2,800/mo after tax, your other half £1,800. That's £4,600 between you. £500 to rent, £1100 to the debts... and how much of the other £3,000/month is going to savings? Only a "small amount"? What, a couple of hundred quid a month?

Cut that discretionary spending HARD, get the debts cleared faster, get that deposit built up. Prioritise.

(Yes, I appreciate there may be other non-discretionary spending such as student loans. But the fact is that you have £3k/mo unaccounted for...)

My pay after tax is £2,208.41, after my pension, I take home £2086.
My partner is currently on £18K, but by the time we could buy next year (December) will be on £22K for her second year as a trainee teacher, this is why I stated how much we will have saved by then and how much her wage will be when we buy.

I think the tax/salary calculator you have used is incorrect.

To put it into context, my partner is currently on 18K, commutes 2 hours a day, and lives on £40 per week disposable.
I live on £35 a week disposable. We shop in Aldi & Asda, we run one very economical car, I actively don't attend social events that cost money, I am wearing a 4 year old pair of jeans that I have sewn up more times than I care to remember. We live on nothing!

I am saving £150 a month in addition to debt repayment, it does not pay to pay off my debt at £150 per month quicker as I can pay into a LISA getting me 1% interest plus the more important 25% bonus, I have available allowance left before April 19, so I am paying into this, as it is not costing me any money to have this debt.

So your monthly take-home will have gone up to around £5,000-£5,600, while you will redirect the £1,100 debt clearance money to join the existing £200ish into the savings pot, and you'll be adding about £1,200 of the £1,400-£2,000/month pay rise to that, while your discretionary spending rises beyond the existing £3k/month, potentially to £3,800/month...?

My wage at £34K = £2086 (after pension)
Her wage at £31K = £1950 (after pension)
Total = £4036

The point of me explaining what salary we will be on by then was relevant to how much we could borrow only. I have based our savings on the maximum we can afford to save on our salaries over the next few years.

I appreciate you taking the time to weigh up whether I can save more, however I assure you - we cannot!

The larger salary I quoted will very close to the time we would have looked to have bought a 3 bed house in around 3 years which is why I have only taken this into account with how much we can lend.

Rent is not "dead". It provides you a home. In this case, it's a very cheap home, heavily subsidised by your relative.

I agree, the reason I referred to it in inverted commas is that is what people refer to it as quite often, I appreciate our rent is very low which is why I thought to mention it.

Please can you base any help in choosing between either options on the information I have given? If we could save more, we would.

Thanks!

jonnygee2

You're earning about £2,800/mo after tax,

You think someone on 34k takes home £33,600 and pays just £400 a year in income tax?

Can I come and live in your country please?

AdrianC

My apologies. Some of the figures I gave may have been incorrectly transcribed pre-tax, but post-brain-fart...

OK, so you're currently seeing £2,100 after tax and pension, plus £1,300 after tax from your OH. That's £3,400/month between you now.
£500 rent, £1,100 debt clearance, £150 saving - that's £1,650/month. £375 in disposable income. That's still £1,275/month...

If your OH goes up to £31k and you to £47k, then that's £2,940 + £2,039/mo after tax. Pension payments may well be a good plan, depending on employer contributions, but balance short term and long term aims...

Your £20k debt will still be £6,800 in a year's time.

twotonealex

jonnygee2 wrote: »

Here's how I would calculate this. I don't think home ownership is sensible, but you can do it yourself.

Note, though, I haven't included any crystal ball like projections about future house values. Because if you save the money you can invest it (say in stocks and shares) and those investments may or may not outperform the housing market. So really, I think it's about how much money is going into something you own and how much is going into someone else's pocket.

I am assuming you are taking out a 30 year mortgage at 2.1% interest, by the way.

Costs of Ownership (over 3 years)

Interest 14000
Service Charge 2000 (as you said it was a flat, assumption here)
Repairs 1500 (again, assuming new build flat and just a few small mishaps/repairs needed)
Disposal 2000 (costs of selling the property)

Cost of renting

Rent 18000


You can obviously play around with these figures as per need, but I don't believe buying is going to put you in a better financial position, mainly because the rent you pay now is only slightly higher than the interest you'd be paying on a mortgage. When you also consider that keeping the money in non-housing investments also gives you more flexibility (houses are notable a very illiquid asset!) I think you are better off being a renter, assuming you can continue in your current renting position.

Thank you! - this further confirms there is very little in it.

Cakeguts wrote: »

You are spending too much each month. Saving for the deposit is practice for the kind of saving that you have to do if you own a house and have to pay for all repairs and maintenance.

If you want to save for a house you have to spend only what you need to.

No car finance. No car finance

No expensive phone contracts get a cheap one. Business contract ends in March when I'll move to sim only

No meals out. no meals out

No expensive holidays or even no holidays or get a tent and camp. no holidays

No takeaways cook food at home and don't buy drinks at work take a flask. Make your own lunchtime sandwiches. I make all of my own lunch and we cook at home every night

Don't buy new clothes because they aren't this year's colour or fashion. I don't buy clothes, the only clothes I get are presents for birthday/christmas - me and my partner don't do Xmas presents!

Put all spare cash into the savings for a house and keep on doing this.

If you are not prepared to save like this you are not going to want to own a house.

Cakeguts, I feel you have fallen fowl of the assumption that Adrian has made.

So in order to help with any further confusion, I have taken the liberty of loading my salary into the below.

I have taken the liberty of addressing your assumptions with an answer in red above.

Once again - I would like to clarify, as much as appreciate the concern from everyone regarding my ability to save more than I am currently (sorry if this message doesn't appear completely, the signal is terrible from my yacht in the Caribbean! ), I am infact just looking for an answer based on the two scenarios I have provided. I am not a complete idiot, and am open to any suggestions based on either of the two options I have provided.

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 2086
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2086

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 1070 (Credit Card)
Rent.................................... 250
Management charge (leasehold property).. 0
Council tax............................. 84
Electricity............................. 39.5
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 55 (Two year contract ends in March, it's a business contract and did not pay to end early, I will be going onto Sim only when it ends).
TV Licence.............................. 12.12
Satellite/Cable TV...................... 7.99
Internet Services....................... 43 (We live in a building where only cabled phone works (Virgin) so our cost is above, and we don't have any other option as normal phone lines don't exist)
Groceries etc. ......................... 80
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 70 (Train to work)
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 7.5
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 35
Entertainment........................... 120 (this covers additional travel to see my family, money for a sports club I'm in, and generally enough to buy a pasty once in a while! or the partner a bunch of flowers!)
Holiday................................. 0
Emergency fund.......................... 0
Charity Payments........................ 15
Savings................................. 175
Total monthly expenses.................. 2064.11


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 0........(0)........0
Secured Debt.................. 5353.54..(1070).....0
Total secured & HP debts...... 5353.54...-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Total unsecured debts..........0.........0.........-


Monthly Budget Summary
Total monthly income.................... 2,086
Expenses (including HP & secured debts). 2,064.11
Available for debt repayments........... 21.89
Monthly UNsecured debt repayments....... 0
Amount left after debt repayments....... 21.89

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -5,353.54
Total Unsecured debt.................... -0
Net Assets.............................. -5,353.54

Created using the SOA calculator at https://www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

twotonealex

AdrianC wrote: »

My apologies. Some of the figures I gave may have been incorrectly transcribed pre-tax, but post-brain-fart...

OK, so you're currently seeing £2,100 after tax and pension, plus £1,300 after tax from your OH. That's £3,400/month between you now.
£500 rent, £1,100 debt clearance, £150 saving - that's £1,650/month. £375 in disposable income. That's still £1,275/month...

If your OH goes up to £31k and you to £47k, then that's £2,940 + £2,039/mo after tax. Pension payments may well be a good plan, depending on employer contributions, but balance short term and long term aims...

Your £20k debt will still be £6,800 in a year's time.

Not a problem Adrian! Thanks for your reply.

We are both on Defined Benefit pension schemes, and won't be stopping payment into these! (Gold plated schemes!)

My partner's wage will increase to £31 in 3 years, mine increasing to £47K is based on what point I am by then, however this is something that is possible but not guaranteed to have happened in 3 years time

I'm really just looking for clarification based on the two scenarios which would be a better option as I don't want to buy and it not be worth it vs miss out if prices grow beyond our range.

Thanks!

Cakeguts

twotonealex wrote: »

Thank you! - this further confirms there is very little in it.



Cakeguts, I feel you have fallen fowl of the assumption that Adrian has made.

So in order to help with any further confusion, I have taken the liberty of loading my salary into the below.

I have taken the liberty of addressing your assumptions with an answer in red above.

Once again - I would like to clarify, as much as appreciate the concern from everyone regarding my ability to save more than I am currently (sorry if this message doesn't appear completely, the signal is terrible from my yacht in the Caribbean! ), I am infact just looking for an answer based on the two scenarios I have provided. I am not a complete idiot, and am open to any suggestions based on either of the two options I have provided.

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 2086
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2086

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 1070 (Credit Card)
Rent.................................... 250
Management charge (leasehold property).. 0
Council tax............................. 84
Electricity............................. 39.5
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 55 (Two year contract ends in March, it's a business contract and did not pay to end early, I will be going onto Sim only when it ends).
TV Licence.............................. 12.12
Satellite/Cable TV...................... 7.99
Internet Services....................... 43 (We live in a building where only cabled phone works (Virgin) so our cost is above, and we don't have any other option as normal phone lines don't exist)
Groceries etc. ......................... 80
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 70 (Train to work)
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 7.5
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 35
Entertainment........................... 120 (this covers additional travel to see my family, money for a sports club I'm in, and generally enough to buy a pasty once in a while! or the partner a bunch of flowers!)
Holiday................................. 0
Emergency fund.......................... 0
Charity Payments........................ 15
Savings................................. 175
Total monthly expenses.................. 2064.11


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 0........(0)........0
Secured Debt.................. 5353.54..(1070).....0
Total secured & HP debts...... 5353.54...-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Total unsecured debts..........0.........0.........-


Monthly Budget Summary
Total monthly income.................... 2,086
Expenses (including HP & secured debts). 2,064.11
Available for debt repayments........... 21.89
Monthly UNsecured debt repayments....... 0
Amount left after debt repayments....... 21.89

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -5,353.54
Total Unsecured debt.................... -0
Net Assets.............................. -5,353.54

Created using the SOA calculator at www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

So apart from the rent you are paying for all the electricity, days out, and all other household expenses so that means that the whole of your partners income could be going into savings? Or do you really mean that your council tax is £160 per month? Are you saying that the council tax is really £1600 a year?

babyblade41

I really don't know much about what you are asking but I do know about living expenses and some are so ridiculously low

80.00 groceries per month... ??

No water rates ??


Presents, birthday, xmas ??

No Clothing ??

No parking or public transport costs... how do you get to the train station ?
Now it was a long time ago when I had to do a budget calculator and what you have stated wouldn't be viable.

We all need clothes, we all need to go out at some point and either use public transport or parking

Your debt seems a little high with so little for manoeuvrability and looking at that calculator that is barely existing let alone living

The exuberance of buying your own home can then turn into a prison sentence if you have not a penny to either go out for the odd treat or a new pair of jeans/dress/handbag / pint and many years ago when I applied for a mortgage all the above had to be factored in

You can't calculate what you might get in future you can only deal with here and now .