Should you get a mortgage or pay cash for your home?

YoungFIREman

Hello everyone!

Context: My girlfriend and I are 19 years old and are currently university students saving at least 75% of our income each month which means we will finish our 4 years at university with over £100,000 saved and invested (in stocks and shares ISAs). We will then be able to save to pay cash for a home (£200,000) in 2 years after graduating - of course depending on how quickly we manage to get a job (both of us want to become teachers). 

We have an emergency fund already saved and we have never been in debt and don’t want to get into debt because we would prefer the freedom of a paid-for home. It is crazy that we are likely to have the money saved for a home by our 25th birthdays but we’ve started very young and it is more than possible for us. 

Once our home is paid for, we will then be looking at weddings/marriage and any home renovations that may need doing before having children in our late 20s. 

And then we will continue saving for retirement which we aim to have the option to do by the age of 40. 

I understand our financial situation is extreme but we have been together nearly 3 years and we are still 19 years old and so we are starting very young. 

Question: are there any obvious downsides to this plan that you can see regarding the financial aspects and is paying cash for a home a smart thing to do or is it more risky than it appears? 

Thank you for your help and I hope you have a lovely day! 

woodsford

Haha this thread made me chuckle.

Shaztastic3000

Rolls eyes

p00hsticks

Personally, I'd say cross that bridge if and when you come to it. By your own admission you are nowhere near ready to buy a house yet, and you don't have the money to buy one for cash anyway. Are you actually living together at the moment ?

You are both still very young and probably yet to find that life throws you curve balls from time to time. You might meet someone else, you might grow apart, you might fail your degree (is that actually possible these days?), you may not be able to have children. The stock market may soar or plummet, as might the housing market.

It's all very well to have some idea of where you want to be heading in life, but don't crush the joy out of the moment by planning every little thing in advance - you'll potentially miss out on opportunities if you do so.

theartfullodger

Buy for cash, very quick completion, some people will like that (IE knock a few thousand £££ off to get deal done quickly).

Then, if the numbers look good (eg very low interest rates) mortgage it (usually have to wait 6 months) and use the money somewhere more profitable.

Did it a couple of times (buy to let as it happens).

Capitalism is cruel and unfair.  See Proudhon.

Suspicion of windup?

moneysavinghero

How do you plan on going from £100,000 to £200,000 in 2 years. Starting salary for teachers is £30,000 - after taxes that would be about £23,500. So even if you put every single penny of your salary into savings that is only £23,500 * 2 * 2 = £94,000. Can you live on £0 each per year?

Doozergirl

moneysavinghero said:

How do you plan on going from £100,000 to £200,000 in 2 years. Starting salary for teachers is £30,000 - after taxes that would be about £23,500. So even if you put every single penny of your salary into savings that is only £23,500 * 2 * 2 = £94,000. Can you live on £0 each per year?

Of course.  

And retire at 40, with more than one child approaching their teens.    Job done!

MX5huggy

No you borrow on a 95% interest only mortgage at say 3% so you keep your investments going which clearly are doing way better than 3% then retire at 35. 

pjcox2005

moneysavinghero said:

How do you plan on going from £100,000 to £200,000 in 2 years. Starting salary for teachers is £30,000 - after taxes that would be about £23,500. So even if you put every single penny of your salary into savings that is only £23,500 * 2 * 2 = £94,000. Can you live on £0 each per year?

Who knows if genuine but if they are saving 75% of income currently whilst studying, then full time job that percentage should go up. If living at home then minimal bills, and presumably teachers starting salary may increase in 3-4 years when they'll be entering employment.
Balance presumably made up of LISA 25% for each on 2 years (£4k) plus bonuses in job, plus returns from initial £100k and any further growth as they refer to S&S ISAs. 
So yes unlikely it seems and lots of ifs, but it doesn't seem impossible if you have extreme savings methods. Whether that's a good thing is another question and most would want balance.

On actual question I wouldn't be tying up all money in property but instead use S&S Isas and pensions if you're trying to retire so early. Opportunity cost would seem high otherwise but like another posters idea of buying cash and remortgaging if there is a benefit.

FaceHead

moneysavinghero said:

How do you plan on going from £100,000 to £200,000 in 2 years. Starting salary for teachers is £30,000 - after taxes that would be about £23,500. So even if you put every single penny of your salary into savings that is only £23,500 * 2 * 2 = £94,000. Can you live on £0 each per year?

They are university students who are each earning c.£44k gross, so make £33k net, of which they save £25k, and live on the other 12k (each, so combined living expenses of 24k p.a.). Given that most people accumulate debt at university, and most 19 year olds don't make £44k, particularly when studying most of the time, something does seem.......unusual.

Once graduated, their net income will double, so they will each be making just over £100k gross, to make c.£66k net. In the first year grads in even the most competitive front office jobs in investment banking grad schemes don't make that for at least a couple of years, so something about the projection seems.....unusual.

It's a blatant wind up for a moneysaving forum. The point that it's possible to be on the property ladder in your early 20's with two incomes from top grad jobs, isn't untrue. OP - next time do it with remotely believable figures, as the figures being way off the mark reveals that you're not in this position. 

AdrianC

YoungFIREman said:

Context: My girlfriend and I are 19 years old and are currently university students saving at least 75% of our income each month which means we will finish our 4 years at university with over £100,000 saved and invested (in stocks and shares ISAs).

So you're saving approx £25k/year between you, £12.5k/each/year. And that means you're living on about £8k/year between you...
Clearly, that's not including any form of accommodation... Or, in fact, just about anything else.

Two people living on £650/mo, ~£10/day each for food, clothing, transport, books, LIFE...
At most.

We will then be able to save to pay cash for a home (£200,000) in 2 years after graduating - of course depending on how quickly we manage to get a job (both of us want to become teachers)

Doubling your saving rate to £25k/each/year...?
Despite starting salary for a teacher being £25-32k before tax, so £20-25k after tax...

Once our home is paid for, we will then be looking at weddings/marriage and any home renovations that may need doing before having children in our late 20s.

Have you considered actually enjoying your youth?
You're one year into your degrees - and you have your entire life planned out?

Do you have the slightest idea where in the world you want to end up living?

Are you absolutely sure you both want to be teachers?
Are you absolutely sure you want to be together...?

And then we will continue saving for retirement which we aim to have the option to do by the age of 40.

By which time, your kid/s will just be starting secondary school, with graduation from university a decade ahead of them...