1st time buyer: Looking at 165k house. I have 150k saved. Should I buy almost outright?

Savingforahouse123

I'm looking at buying my first house valued at 165k. I've got up to 150k I can put down towards the house meaning I'm close to being a cash buyer. However I'm wondering if I should put down far less and invest that money in stocks (ETFs/index funds) which historically have outperformed housing. How much do you think I should put down as a deposit and how much do you think I should invest?

I'll also rent out a room in the house and get £400-£500 a month from the person I live with.

I'd be comfortable paying at most £450 in monthly mortgage payments - but I have the flexibility of not having to pay anywhere that amount. I'd also make this back from the person I live with.

I'm very minimal and don't spend a lot but recently had a career change with a sizeable pay decrease so now earn £1500 a month (£21.7k per annum). I'm about to be 28 years old in a couple of weeks.

I'd be looking at a 40 year mortgage that's fixed for 5 years (although not ruling out 10 year fixed).

rdchick

Personally I'd look at being an almost cash buyer. Seems mad to have that much savings and then have high amounts of debt. 

I would love to be almost 30 and not have a payment in the world (obviously you'd have utilities to pay but no debt and a paid for house)... But that's just me

Savingforahouse123

rdchick said:

Personally I'd look at being an almost cash buyer. Seems mad to have that much savings and then have high amounts of debt. 

I would love to be almost 30 and not have a payment in the world (obviously you'd have utilities to pay but no debt and a paid for house)... But that's just me

Thanks for the answer. So would you say put down all of my savings for the deposit and the remainder for all other costs associated with housing and then none towards investing in stocks? Or what would you say the split/ratio would be between money towards housing vs money towards investing in index funds/ETFs?

Please bear in mind I'll be renting a room for around £400-500 per month so that'll likely take care of monthly mortgage payments.

JGB1955

How about 50/50?  You can always overpay the mortgage. How do investment (1 year savings rates in my case - 2.34%) compare with the mortgage rate you're locked into?

Brie

Investing will hopefully make you a nice percentage that you can cash in at some future date.  Until then you have zero.

Meanwhile if you have a mortgage you will be paying out money for interest.

Assuming you put at least half the rent you get towards the mortgage (the rest to living costs) you could own the place out right in about 5 years.  I think that's rather marvellous.

Savingforahouse123

JGB1955 said:

How about 50/50?  You can always overpay the mortgage. How do investment (1 year savings rates in my case - 2.34%) compare with the mortgage rate you're locked into?

I've got a broker who's currently looking into the rates and will advise but I want to make sure i'm educated too and listen to others rather than just relying on him and putting all of my eggs into his basket!

I'm currently leaning towards putting more into the house. Maybe a 75:25 split (75 going towards the house & all other costs associated with the house including my emergency fund if things go wrong with house & 25% going towards investments). All depends on what the broker comes back with in terms of mortgage numbers though.

Savingforahouse123

Brie said:

Investing will hopefully make you a nice percentage that you can cash in at some future date.  Until then you have zero.

Meanwhile if you have a mortgage you will be paying out money for interest.

Assuming you put at least half the rent you get towards the mortgage (the rest to living costs) you could own the place out right in about 5 years.  I think that's rather marvellous.

Thanks. So in terms of how much I put towards the house and how much you think I should invest, how'd you split it? 

Brie

I'm sure someone will correct me if I'm wrong but don't you have to pay income tax on rent?  I know there's a cut off point where it's not required but I would have thought £500 a month would be above that.

Savingforahouse123

Brie said:

I'm sure someone will correct me if I'm wrong but don't you have to pay income tax on rent?  I know there's a cut off point where it's not required but I would have thought £500 a month would be above that.

No I don't pay tax on it.

"The Rent a Room scheme is a government incentive that allows landlords and live-in landlords to earn £7,500 of tax-free income every year." 

500x12 = £6k