5% deposit a good idea?

moneysavinghero

RoisinDove said:

GoingOn30 said:

If you go for one of the cheaper properties with a 10% deposit, it sounds like you'll be wanting to move on to a better property in a year or 2. 
I'd take advantage of the 5% deals and get the better place that you can stay in longer, as long as you have decent job security/employability.

I've just thought...the main issue is actually that 4.5 times my salary is too low for anything nice and that's the actual problem. Is there any way around this other than going for shared ownership? It's only slightly under, which is very frustrating. As in an extra 20K would make a massive amount of difference....there are lots of nice properties for 300K, but under 280K it becomes slim pickings. 

If the main issue is the 4.5 times salary rule then you should be looking at increasing your deposit not reducing it. Keep saving till have enough.

AdrianC

princeofpounds said:

If you buy a property on a 5% deposit, and property prices go down even 1% without you making up the difference in overpayments, you will not be able to re-mortgage as you do not have sufficient equity to access any deals on the market. You will be stuck on the standard variable rate when your term ends; that is expensive and may even mean you get trapped. It's not quite negative equity, but will be a similar situation.

You're ignoring the basic reduction in capital.

Even in just the first year, you'll repay about 3% of the capital of a typical 25yr mortgage, 2.5% of a 30yr.

After 5yrs, a 30yr will be down to less than 90% of the original balance, 25yr nearer 85%.

That's without overpaying a single penny.

RoisinDove

davilown said:

RoisinDove said:

GoingOn30 said:

If you go for one of the cheaper properties with a 10% deposit, it sounds like you'll be wanting to move on to a better property in a year or 2. 
I'd take advantage of the 5% deals and get the better place that you can stay in longer, as long as you have decent job security/employability.

I've just thought...the main issue is actually that 4.5 times my salary is too low for anything nice and that's the actual problem. Is there any way around this other than going for shared ownership? It's only slightly under, which is very frustrating. As in an extra 20K would make a massive amount of difference....there are lots of nice properties for 300K, but under 280K it becomes slim pickings. 

Can you expand the area you are looking in? Relocate job? I would be very hesitant to put that sort of money into a flat all things considered, and I think you’re quite correct - recession of sorts is in it’s way.

Just another thought, are you able to save for a little bit longer?  There’s every possibility that prices may be adversely affected of the next 6 months which may make it easier for you to purchase more of what you want

I could expand the area, yes, but it would mean a long commute into London, not just for work but for everything. Relocating would likely make me worse off due to salaries in my field being much lower outside London. I haven't ruled it out but I'm hesitant to end up isolated in a place I don't know anyone. I think that could make me extremely miserable unless I managed to find somewhere with lots going on and lots of other people in my situation. 

I can save for longer, but I need to move out of my current place by the end of July. Not having bought by then would mean either signing another lease or moving into expensive short term rental accommodation. Why do you reckon prices might come down? That would be great for me if it happened, but my worry is that the opposite might happen. They seem to have already started going up since I first started flat hunting in January. If they came down even a little, I'd be in a far better situation!

crumblylancashire

RoisinDove said:

davilown said:

RoisinDove said:

GoingOn30 said:

If you go for one of the cheaper properties with a 10% deposit, it sounds like you'll be wanting to move on to a better property in a year or 2. 
I'd take advantage of the 5% deals and get the better place that you can stay in longer, as long as you have decent job security/employability.

I've just thought...the main issue is actually that 4.5 times my salary is too low for anything nice and that's the actual problem. Is there any way around this other than going for shared ownership? It's only slightly under, which is very frustrating. As in an extra 20K would make a massive amount of difference....there are lots of nice properties for 300K, but under 280K it becomes slim pickings. 

Can you expand the area you are looking in? Relocate job? I would be very hesitant to put that sort of money into a flat all things considered, and I think you’re quite correct - recession of sorts is in it’s way.

Just another thought, are you able to save for a little bit longer?  There’s every possibility that prices may be adversely affected of the next 6 months which may make it easier for you to purchase more of what you want

I could expand the area, yes, but it would mean a long commute into London, not just for work but for everything. Relocating would likely make me worse off due to salaries in my field being much lower outside London. I haven't ruled it out but I'm hesitant to end up isolated in a place I don't know anyone. I think that could make me extremely miserable unless I managed to find somewhere with lots going on and lots of other people in my situation. 

I can save for longer, but I need to move out of my current place by the end of July. Not having bought by then would mean either signing another lease or moving into expensive short term rental accommodation. Why do you reckon prices might come down? That would be great for me if it happened, but my worry is that the opposite might happen. They seem to have already started going up since I first started flat hunting in January. If they came down even a little, I'd be in a far better situation!

Its really tricky, here's a tale of a 95% mortgage headache! ....  back in 2007 I took out a 95% mortgage on a lovely house in a nice place, then the market crashed and it ended up massively in negative equity and took another 10 years to recover.  But, we couldn't remortgage and had to just keep it on SVR because there was no money in it.  That relationship broke down and we sold it in 2017 (didn't really make anything on it), and I went into rental.  I have very recently bought a new house, and not wanting to repeat mistakes, have bought an ex-council house in a far less salubrious area (and I live up North, so its way cheaper than London), with a 15% deposit and reckon I can pay it off in 10 years because the mortgage is 1.5 time salary.  I guess it depends what you want to do - expanding the search area, especially if the need to commute is less - could be well worth it, and you may be able to get a bigger place for less.  Good luck, whatever you choose to do!

moneysavinghero

House prices are going up because everyone is having the same thoughts as you - they must buy a house now or they are going to miss out because prices keep rising so they join in the 'i will buy something i am not such i can afford' game. This is a self-fuelling and is how bubbles form. It can't last for ever and must at least cool down if not pop (crashy has his fingers crossed) at some point.

princeofpounds

AdrianC said:

princeofpounds said:

If you buy a property on a 5% deposit, and property prices go down even 1% without you making up the difference in overpayments, you will not be able to re-mortgage as you do not have sufficient equity to access any deals on the market. You will be stuck on the standard variable rate when your term ends; that is expensive and may even mean you get trapped. It's not quite negative equity, but will be a similar situation.

You're ignoring the basic reduction in capital.

Even in just the first year, you'll repay about 3% of the capital of a typical 25yr mortgage, 2.5% of a 30yr.

After 5yrs, a 30yr will be down to less than 90% of the original balance, 25yr nearer 85%.

That's without overpaying a single penny.

Yes, that's correct, sorry for the oversight. The risk still exists but you can dig your way out of it if house price depreciation is not too severe.

RoisinDove

crumblylancashire said:

RoisinDove said:

davilown said:

RoisinDove said:

GoingOn30 said:

If you go for one of the cheaper properties with a 10% deposit, it sounds like you'll be wanting to move on to a better property in a year or 2. 
I'd take advantage of the 5% deals and get the better place that you can stay in longer, as long as you have decent job security/employability.

I've just thought...the main issue is actually that 4.5 times my salary is too low for anything nice and that's the actual problem. Is there any way around this other than going for shared ownership? It's only slightly under, which is very frustrating. As in an extra 20K would make a massive amount of difference....there are lots of nice properties for 300K, but under 280K it becomes slim pickings. 

Can you expand the area you are looking in? Relocate job? I would be very hesitant to put that sort of money into a flat all things considered, and I think you’re quite correct - recession of sorts is in it’s way.

Just another thought, are you able to save for a little bit longer?  There’s every possibility that prices may be adversely affected of the next 6 months which may make it easier for you to purchase more of what you want

I could expand the area, yes, but it would mean a long commute into London, not just for work but for everything. Relocating would likely make me worse off due to salaries in my field being much lower outside London. I haven't ruled it out but I'm hesitant to end up isolated in a place I don't know anyone. I think that could make me extremely miserable unless I managed to find somewhere with lots going on and lots of other people in my situation. 

I can save for longer, but I need to move out of my current place by the end of July. Not having bought by then would mean either signing another lease or moving into expensive short term rental accommodation. Why do you reckon prices might come down? That would be great for me if it happened, but my worry is that the opposite might happen. They seem to have already started going up since I first started flat hunting in January. If they came down even a little, I'd be in a far better situation!

Its really tricky, here's a tale of a 95% mortgage headache! ....  back in 2007 I took out a 95% mortgage on a lovely house in a nice place, then the market crashed and it ended up massively in negative equity and took another 10 years to recover.  But, we couldn't remortgage and had to just keep it on SVR because there was no money in it.  That relationship broke down and we sold it in 2017 (didn't really make anything on it), and I went into rental.  I have very recently bought a new house, and not wanting to repeat mistakes, have bought an ex-council house in a far less salubrious area (and I live up North, so its way cheaper than London), with a 15% deposit and reckon I can pay it off in 10 years because the mortgage is 1.5 time salary.  I guess it depends what you want to do - expanding the search area, especially if the need to commute is less - could be well worth it, and you may be able to get a bigger place for less.  Good luck, whatever you choose to do!

Ooh yikes, that sounds like a headache! 

I'm in a bit of a weird place in my life at the moment...became single again at 35, still hoping to meet someone and have the house, maybe family thing etc., but it feels silly to keep hanging on for a 'maybe' rather than just buying somewhere that suits me now (one bed flat in London). Can't decide what to do for the best.

RoisinDove

moneysavinghero said:

House prices are going up because everyone is having the same thoughts as you - they must buy a house now or they are going to miss out because prices keep rising so they join in the 'i will buy something i am not such i can afford' game. This is a self-fuelling and is how bubbles form. It can't last for ever and must at least cool down if not pop (crashy has his fingers crossed) at some point.

But it hasn't yet, which is what people laugh at Crashy for, surely? I would actually prefer to wait and buy some time to think and see how life is as the pandemic winds down but other people are warning me that I could end up getting priced out by doing that. I'm not going to be able to save much much while renting...I've got a good deal now which allows me to save loads but I won't have it after July

Crumble2018

We bought our flat in late 2019 on a 5% deposit.  We'd have preferred a larger deposit, but we didn't have time on our side, and no way of saving for a larger one (the 5% was gifted)  Due to some financial disasters, we sold our first home in 2012, and didn't think we'd buy again.  Our mortgage is higher than our rent, but this was our last chance to buy as we are both in our late 40's.  I'll be working into my 70's to pay off the mortgage, but the security over renting is worth it.

getmore4less

princeofpounds said:

If you buy a property on a 5% deposit, and property prices go down even 1% without you making up the difference in overpayments, you will not be able to re-mortgage as you do not have sufficient equity to access any deals on the market. You will be stuck on the standard variable rate when your term ends; that is expensive and may even mean you get trapped. It's not quite negative equity, but will be a similar situation.

This is a real risk, made particularly acute because 5% deposit mortgages do not exist a lot of the time, so you may find the goalposts get moved by the mortgage industry to 10% at any point.

So I wouldn't do it.

But if you take the risk and property prices go up whilst 5% mortgage deals stay available, then it will probably turn out to be beneficial overall.

There are lenders that have retention products over 95% some go over 100%


For many the difference between their 95% rates and SVR rates is nominal(some its less) as 95% are around 4%.

On a 30 year term over 2years  you pay off 3.5% of purchase  in 5 years 9%  with over payments even more you do catch up.


The real measure is the interest part of the payment going to be cheaper than renting