Should we buy or continue renting?

Ryanzombie

Hi all!

Hoping I can get some outside perspective on me and my partner's current situation. Any advice is greatly appreciated!

We're currently renting in London (until Jul 2020) at £2,000pcm. We currently have £35,000 saved for a deposit and think we can save another 5-8k over the next 6 months.

Ideally, we are looking to buy somewhere around the £500k mark. Right now we are pretty far off the £50k 10% deposit + extras normally required to buy, but we're also considering the HTB route.

Question is, should we use the HTB scheme to borrow 20% (£100K) and £25k of our own savings to buy with a £375,000 mortgage, or shall we rent for an extra year at around £2k a month (£24k over 12 months) and continue to save until we reach £60k+ to cover deposit and costs?

Of course we can reduce the amount of rent we pay if we continue renting, but honestly this is likely to only go down to around £1800pcm.

We are both split 50/50 - I am leaning towards buying and the other half towards saving more.

Any thoughts???

Thank you!

theartfullodger

Depends if house prices go up or down much, and if rental prices go up or down much. And with Br*x*t then, as we know, it's crystal ball-gazing time and F K, I'm afraid.

kuratowski

With HTB you can only buy a new build. Many people would say new builds are bad value as there is a new home premium which you will lose as soon as the property has been owned. Also, the HTB loan
attracts quite usurious rates of interest after year 5.

My recommendation is you save for one more year, and look to buy somewhere with a larger deposit, free of government assistance, and a seasoned property.

Do you both have LISAs?

AFF8879

I’d advise to continue saving and buy a preexisting property at a later date. Not because the HTB scheme is inherently bad (though there are restrictions that are quite off-putting e.g. not being allowed to repay the HTB loan in manageable increments), but in order to avoid severely overpriced new builds with all the pitfalls that go along (high service charges, onerous leasehold terms, large value depreciation on day one). Plus you’ll generally get much larger rooms, possibly garden and parking etc in older properties.

Ryanzombie

kuratowski wrote: »

With HTB you can only buy a new build. Many people would say new builds are bad value as there is a new home premium which you will lose as soon as the property has been owned. Also, the HTB loan
attracts quite usurious rates of interest after year 5.

My recommendation is you save for one more year, and look to buy somewhere with a larger deposit, free of government assistance, and a seasoned property.

Do you both have LISAs?

Thanks for your reply!

I think we're both happy with purchasing a new build. The areas of London we're looking at are fairly "busy" as we're not the type to want to live on a quiet residential road. Although, I wouldn't say no if the perfect house came about!

A little worried about the value going down, but also wondering whether it would go down by much or hopefully stay fairly stable if the location is much sought after?
I ran calculations on the interest after 5 years and the increase we could manage, but also not sure what our thoughts we be on moving/staying put yet.

We have a HTB ISA and LISA respectively.

Retired_Mortgage_Adviser

Are you looking to buy a flat or house? In or outside London? If in London which zones/areas?

I'm only asking because (as you probably know) the buying power of 500k in London will vary wildly depending on the specifics.

jonnygee2

Save more and buy outright. Just one more year of saving sounds like it could make everything easier. HTB should be a last resort really(if used at all) - it;s far better to own outright.

And as above I would avoid new builds, especially one beds. As a Londoner with friends who bought such properties a few years ago I can tell you they are very hard to shift, some are seeing some pretty big downwards valuations.

Ryanzombie

Retired_Mortgage_Adviser wrote: »

Are you looking to buy a flat or house? In or outside London? If in London which zones/areas?

I'm only asking because (as you probably know) the buying power of 500k in London will vary wildly depending on the specifics.

Looking to buy a flat in Zone 2/3. We’re currently in Hackney but open to other areas.

It looks resoundingly like a save more and buy response. I guess I am just a bit fed up of renting but need to be a bit more patient!

steampowered

Ryanzombie wrote: »

Ideally, we are looking to buy somewhere around the £500k mark. Right now we are pretty far off the £50k 10% deposit + extras normally required to buy, but we're also considering the HTB route.

Remember that a £500k property would add £10k in stamp duty, even for a first time buyer. You'll also have conveyancing fees.

Also, is your joint salary enough to get a £450k mortgage? MSE's affordability calculator suggests you need a joint salary of about £120k to get a £450k mortgage, though you can push that a bit.

Question is, should we use the HTB scheme to borrow 20% (£100K) and £25k of our own savings to buy with a £375,000 mortgage, or shall we rent for an extra year at around £2k a month (£24k over 12 months) and continue to save until we reach £60k+ to cover deposit and costs?

There are quite a few downsides to HTB:
- You are limited to new build properties, which tend to be more expensive.
- The government owns 20% share of your house.
- You will pay interest on your equity loan.
- In a few years time you will need to pay off your equity loan which will cost you a few grand in valuation fees and conveyancing fees.

If we are only talking about 1 more year of saving, I would definitely buy outright in a year's time rather than going the HTB route.

You could also look at taking a 95% mortgage, if your household income is high enough.

jonnygee2

I guess I am just a bit fed up of renting but need to be a bit more patient!

Don't worry, you'll still have plenty of years to get fed up of owning instead ;-)

kuratowski

jonnygee2 wrote: »

Don't worry, you'll still have plenty of years to get fed up of owning instead ;-)

Yes, and we'll have OP posting here on the Mortgage Free Wannabe forum before long, no sooner do you have a mortgage than you're wishing you could pay it off :rotfl: